Your contract termination has been reversed. Now what?
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By
Ross Wilkers
Agencies can call, and are calling, contractors back to work after telling them their services are no longer required.
For better and for worse, government contractors have built up some institutional knowledge of how to function when their agency customers issue stop-work orders and send directives to restart the contract after re-opening.
The 16-day shutdown in October 2013 that affected all agencies is one example, as is the most recent funding lapse that caused a partial shutdown from Christmas 2018 into the end of January 2019.
Contract terminations for convenience are not designed to be temporary and have become a recurring theme in this new Trump administration, as the Department of Government Efficiency works on the mandate in its name.
On a call with reporters Thursday, Professional Services Council CEO David Berteau said members of the trade association representing government contractors are facing “a mess” amid the growing volume of terminations.
Here is one unusual part of the situation as PSC and its members see it, which likely informs Berteau’s usage of that M-word.
Some agencies are issuing terminations for convenience and then reversing them, a move that requires contractors to start working again. Then some of those agencies are reinstating the terminations, only to lift them again.
That “whipsawing effect,” as Berteau characterized it, is taking place “at a number of vastly greater than anything I've seen in my entire career.”
One similar thread between stop-work orders and terminations for convenience involves how contractors communicate with their contracting officers on what costs will be accumulated as part of a claim for reimbursements.
Contractors likely have to set aside the accumulated costs for termination in a reversal scenario even as they create the record for that claim. A second termination after that reversal essentially requires contractors to start a whole new claim, a sequence Berteau said results in vastly different accumulations of revenue and incurred costs.
The claims process gets messier when the termination is not for the whole contract.
“What we've been seeing is not necessarily a reinstatement of the entire contract initially terminated, but rather certain elements of the statement of work, or part of the scope of the contract,” said Stephanie Kostro, PSC’s executive vice president for policy. “It’s not even a 100% solution or a 0% solution.”
So what is a contractor supposed to do when told their contract is terminated, only to be told later on that it is no longer terminated?
Mike Wagner, a partner and government contracts attorney at the law firm Covington, said that written notices of termination generally are final and conclusive with no going back.
“There are circumstances in which an agency may seek to rescind a termination and reinstate a previously-terminated contract, but the key is that is this is permitted only with the written consent of the contractor,” Wagner wrote to me with the bolded emphasis his. “In many cases, reinstatement may be a very welcome development. But depending on the circumstances, it also could be highly disruptive – especially where the contractor already has taken steps to retool and refocus its efforts.”
Jason Workmaster, also a GovCon attorney and leader of Miller & Chevalier's government contracts counseling & litigation practice, pointed out that such reversals of terminations are quite rare.
Workmaster highlighted Federal Acquisition Regulation 49.102 as the reference point for contractors as it spells out how terminations work and who is responsible for what.
That rule dictates agencies can, with the contractor’s consent of course, reverse the terminations if the “circumstances clearly indicate” there is a need for the terminated items and such a reinstatement is “advantageous” to the government.
“Contractors who want their contracts reinstated will want to do their homework and demonstrate to their contracting officers that there is a clear need for their goods or services, and that restarting the contract benefits the government,” Workmaster wrote to me. “To do so, contractors could even consider offering to reduce their prices to make the deal better for the government.”
Regarding post-termination remedies, Wagner said settlement expenses and reasonable profit on the work performed are included along with incurred costs.
“In this situation, companies absolutely should carefully assess the relative benefits of both reinstatement and traditional termination for convenience remedies and ensure that they are making a well-informed business decision about how to proceed,” Wagner said.
But after laying out everything on termination settlements: when contractors receive that money sounds like an open question given the state of unpaid invoices across government.
In February, President Trump signed an executive order directing agencies to build centralized technology systems that can “record every payment” issued under grants and contracts.
Executive Order 14222 also requires a “written justification” for every payment submitted and has paused many invoice payments until those systems are up and running.
Berteau said a roughly dozen small companies that were PSC members have shuttered completely because of the slow invoice payments. That backlog is not exclusive to the U.S. Agency for International Development, which is being wound down.