What to Do When Work Stops: A CPA’s Perspective on Stop-Work Orders

In today’s volatile political climate, government contractors face an increasing risk of stop-work orders. Federal priorities and budgets are shifting, so contractors must be prepared to navigate these challenges. Failing to act swiftly and strategically can turn a temporary stoppage into a financial crisis. However, you can utilize proactive financial planning, contract management, and compliance strategies in order to weather the storm.  

What is a Stop-Work Order?

A stop-work order is a directive issued by a government contracting officer that requires a contractor to temporarily halt performance on all or part of a contract. These orders are typically issued under Federal Acquisition Regulation (FAR) 52.242-15, which allows the government to suspend work for various reasons, such as funding issues, changes in project scope, or policy shifts.  

General regulation of a stop-work order: 

• A stop-work order must be received directly from the government contracting officer.  

• Stop-work orders have a maximum duration of 90 days before requiring a mutually agreed upon extension.  

• The stop-work order should be in writing and clearly state the scope, duration, and reason for the stoppage. In certain situations, it may be issued verbally, but it must be confirmed in writing as soon as possible. 

• The contractor must take all reasonable steps to minimize the incurrence of costs allocable to the work during a stop-work order. 

You Have Received a Stop-Work Order. Now What?

Upon receiving a stop-work order, contractors must first assess the financial impact and determine whether to pursue a Request for Equitable Adjustment (REA) or a contract claim under the Contract Disputes Act (CDA). An REA is a less adversarial request for compensation due to increased costs or schedule adjustments resulting from the work stoppage. It allows for negotiation with the contracting officer and often preserves a cooperative relationship. However, if the government denies the REA or the contractor believes they are entitled to a legal remedy, they can escalate the matter by filing a claim under the CDA.  

When to pursue an REA: 

• The contract is still in its early-mid stage of performance. In the early stages of a contract, there is generally more flexibility to negotiate changes without disrupting contract momentum. Additionally, the REA can be used to adjust costs and timing with the change.  

• A strong relationship exists and/or the contracting officer has signaled openness with an REA. With current changes taking place in the federal government, it’s possible that the stop-work order can be mitigated with amicable negotiations.  

• The cost or schedule impact is minor. An REA is designed for short-term adjustments. In some cases, the result of an REA can be more advantageous than the original contract.  

• The potential contract modifications and amendments are carefully reviewed and agreed upon. Sometimes, certain contract changes allowing work to resume can revoke the contractor’s right to a claim.  

An REA must be submitted within 30 days of the stop order ending, but there is no time limit on a response from the government. Thus, during times of government changes, it is crucial to be well equipped for delays. 

Financial Considerations

Strong accounting practices are essential when dealing with an REA. Certain costs are reimbursable, so accurate records and proper cost allocation are crucial to ensure reimbursement. By not adequately accounting for costs during an REA, contractors are leaving money on the table. Even more concerning, costs that are included but not properly documented could expose the contractor to issues down the road. 

Having a well-established financial policy streamlines the process, minimizes disputes, and ensures compliance with government regulations. Here are a few practices to consider: 

• Ensure regular communication between the finance team and project managers. By staying updated on project timelines and impacts, finance teams can promptly capture any labor, material, or overhead costs related to the stop-work order. This collaboration ensures that all costs, both direct and indirect, are accurately documented and allocated for reimbursement in an REA.  

• Document efforts to minimize costs allocable to the work. This documentation can protect you from potential fees and fines.   

• Establish a protocol. Without a clear protocol for stop-work orders, contractors commonly miss tracking important costs, leading to missed opportunities for reimbursement, as expenses related to delays or disruptions may go unaccounted for. A structured approach ensures all relevant costs are captured and properly documented for an REA submission. 

• Maintain a clear audit trail. Every cost must have proper documentation that links directly to the stop-work order or project delay. This paper trail ensures compliance with government regulations and provides the necessary evidence in case the REA is reviewed or audited. Failing to maintain a clear audit trail can result in rejected costs, audit findings, and potential penalties for non-compliance. 

Stop-work orders don’t have to be a financial or operational disaster if contractors handle them strategically. Companies can turn these challenges into opportunities for efficiency and cost control. By staying adaptable and engaged, government contractors can emerge from stop-work orders stronger and better positioned for future success.