Imagine your contracting officer has, in accordance with FAR 52.242-15, notified you in writing to stop work on one of your contracts. Do you know what you should do next?
Regulatory Requirements of Stop Work Orders (SWO)
If you are ordered to stop work on one of your contracts, you need to stop all work on the affected contractual effort and either reduce or preferably eliminate the incurrence of costs allocable to the contractual efforts covered by the stop work order. If you have subcontractors working on the contractual efforts under the stop work order, you need to ensure they also stop work and minimize or eliminate allocable cost incurrence as well.
It is also important to immediately start documenting all efforts made to reduce or eliminate the incurrence of cost and, where it is not practical or possible, indicate what costs cannot be reduced or eliminated and the reason why.
Unless an extension of time has been agreed to by both parties (i.e. you and the government), the contracting officer has ninety days to either (1) cancel the stop work order, or (2) terminate the work covered by the stop work order.
Cancelled and Expired SWOs
If the stop work order is canceled, or if the stop work order along with any agreed to extension expires, you are required to resume contractual work. You then have thirty days to inform the contracting officer of your intent to file a Request for Equitable Adjustment (REA) to the contractual performance schedule and/or the additional cost to be incurred as a result of the stop work order. If the delivery schedule is not adjusted, you can request recovery associated with any cost incurred in accelerating performance to meet the unchanged schedule.
In the case where the contract is terminated for the convenience of the Government, the contracting officer has to allow recovery of costs incurred from the stop work order in the termination settlement.
Cost recovery Following SWOs
The additional costs incurred as a result of the stop work order can be recovered through the preparation, submission and negotiation of an REA. Some increased costs able to be collected by the REA include, but are not limited to:
Idle time resulting from your employees not being able to perform contractual obligations due to the lack of access to government facilities or government personnel;
- Idle time resulting from your employees not being able to perform contractual obligations due to the lack of access to government facilities or government personnel;
- Severance costs and/or increased unemployment taxation resulting from the stop work period;
- Cost of facilities made idle during the SWO;
- Remobilization costs once the stop work order ends;
- Recruitment and/or training costs associated with positioning of required personnel;
- Increased labor and material costs due to inflation;
- Overtime or other increased costs required to meet an unchanged schedule requirement;
- Claimed additional subcontractor costs resulting from the SWO;
- Settlement costs associated with the preparation, submission and negotiation of the REA, including the reclassification of internal efforts normally recorded as indirect, as well as, outside accountants, consultants and counsel; and
- Profit on the additional contract costs included in the REA.
A major cost area to be included in the REA is the claim for unabsorbed or misallocated indirect expenses resulting from the suspension, delayed or disrupted stream of direct cost upon which the indirect costs are allocated. The Defense Contract Audit Agency considers a claim for unabsorbed overhead a request to recoup overhead costs allocated to other work because of the work stoppage.
It is important for government contractors to think out-of-the-box when determining the costs to be included in the REA. While the contractor is responsible for demonstrating entitlement to the recovery of the REA costs, the calculation is not limited to established accounting processes and rules (i.e., normally indirect costs may be determined and included as direct).
To quote Winston Churchill “Gentlemen, we have run out of money. Now we have to start thinking.”