INFOTECH AND THE LAW

Yes, Contractors Can Recover Costs of Not Doing Business

P> Government workers are back on the job, at least for now, and so are many government contractors whose work was temporarily suspended. But many other contracts remain suspended while budget negotiations continue. For government contractors providing goods and services, on-again, off-again performance has disrupted contract performance and increased costs. Can these increased costs be recovered, and if so, how does one make the claim?


As with any change in contract performance imposed by the government, the first and most important step a contractor can take is to carefully document every added cost incurred as a result of the funding gap or a stop-work order. If even a relatively brief delay will extend contract performance, that fact should be documented. Likewise, every communication between the contractor and the contracting officer relating to a government-imposed delay in performance should be documented to ensure successful negotiation or prosecution of a claim.

The liability of the government for the contractor's increased costs for a stop-work order or other government-imposed delay is determined initially by the terms of the contract. The Federal Acquisition Regulations require that one of several suspension or delay clauses be included in each contract. The specific clause selected depends on whether the contract is a fixed-price or a cost-reimbursement contract, and on the nature of the goods, services or facilities being acquired.

Most negotiated contracts for supplies, services and research and development will contain a stop-work order clause. The standard clause permits the government to order a suspension of all or any part of the work under the contract. The order must be specifically identified as a stop-work order, describe the work to be suspended, provide the contractor with guidance concerning subcontracts and give instructions concerning the contractor's orders for materials or services needed to perform the contract. FAR permits stop-work orders to be effective for up to 90 days, although specific contracts may have shorter periods.

Upon receipt of a stop-work order, the contractor is required to immediately cease the specified work and take reasonable steps to minimize additional costs. Within the 90-day (or shorter) period, the contracting officer is supposed to either cancel the stop-work order or terminate the contract. If the stop-work order is canceled, or expires without the government taking any action, then the contractor may resume work.

The government then is required to make an equitable adjustment to the delivery schedule and/or contract price if the stop-work order resulted in an increase in cost or time required to complete the contract. The contractor must demand the adjustment within 30 days after the end of the work stoppage. The clause permits the contracting officer to waive the 30-day requirement, but a prudent contractor will either submit a timely demand for an adjustment or obtain the written authorization of the contracting officer to seek the adjustment later. If the government terminates the contract, the contracting officer is supposed to allow reasonable costs resulting from the stop-work order in arriving at a termination settlement.

In all fixed-price contracts for non-commercial items, and in some fixed-price contracts for commercial items or services, a government delay of work clause is used. Under this clause, no order from the contracting officer is required. Instead, the burden is on the contractor to notify the government that an action by the contracting officer has caused a delay or interruption in contract performance. The contracting officer is required to adjust the delivery schedule and contract price to equitably reflect the increased costs to the contractor. This clause may not be used to adjust a contract if the request for added time or cost is provided for, or excluded, by another clause in the contract.

The delay of work clause also specifically excludes recovery for costs incurred more than 20 days before the contractor notifies the government in writing of the government action causing the delay. For delays over 20 days, more than one notice should be given. A claim under the clause is barred unless it is submitted in a stated dollar amount "as soon as practicable" after the interruption ends.

Another complication facing contractors seeking reimbursement of costs from funding delays is the sovereign act defense. This government defense says that the government may not be held liable for taking actions as a sovereign, i.e., to further general public ends. The courts have drawn a line between the government acting as a sovereign and the government acting in its capacity as a party to a contract. The sovereign act defense does not apply when the government acts in the latter capacity. The complication arises because the courts have not been consistent in identifying those instances in which the government is acting as sovereign and those where it is acting in its contractual capacity. A carefully documented claim, properly prosecuted by experienced counsel, should prevail under such circumstances.

Jonathan T. Cain is a partner in the high-technology practice group of Shaw, Pittman, Potts & Trowbridge in McLean, Va. He may be reached by e-mail at Jonathan_Cain@shawpittman.com


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