• Contractors, Prepare for Construction Projects to Stop and Know Your Legal Rights

    Contractors, Prepare for Construction Projects to Stop and Know Your Legal Rights

    Over the past two weeks, the United States has experienced change at break-neck speed. On March 16, 2020, the City of Boston ordered the cessation of all construction projects in the city for an initial period of 14 days. It is only a matter of time before other cities and the federal government do the same.

    Now is the time for contractors to prepare and review their rights

    Contractors anticipating project cessation should review their rights under their contract/award and applicable Federal Acquisition Regulation (FAR) provisions, be aware of the pertinent time constraints for submitting a claim and be prepared to do so within the time allowed. The time to prepare is now.

    In the event that a contractor is ordered to cease operations, it is critical that the contractor retain and review the government’s order, segregate costs attributable to the suspension or work-stoppage, and be prepared to submit its claim promptly upon project reinstatement.

    Now is the time to appoint and to task your claim submission team. Identifying and tracking the potential sources of recovery against the government during the work cessation will permit contractors to promptly submit their claim. Contractors who are not aware of their recovery rights under the FAR risk claim rejection and denial due to the contractor’s failure to promptly act.

    FAR Stop-Work Orders versus Suspensions of Work

    While federal Stop-Work Orders and Suspensions of Work are often used interchangeably, it is critical that the contractor realize that the FAR provisions, and the rights and remedies afforded thereunder, are very different indeed. It is imperative that the federal contractor pay attention to the government’s work cessation directive so that it does not unknowingly waive its rights to submit a valid claim against the government.

    FAR 52.242-14, Suspension of Work, clauses are incorporated into fixed-price construction or architect-engineer contracts. The Suspension of Work clause provides that the “Contracting Officer may order the Contractor, in writing, to suspend, delay, or interrupt all or any part of the work of this contract for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.”

    If the performance of all or part of the work is, “for an unreasonable period of time, suspended, delayed, or interrupted (1) by an act of the Contracting Officer in the administration of this contract; or (2) by the Contracting Officer’s failure to act within the time specified in this contract (or within a reasonable time if not specified), an adjustment shall be made for any increase in the cost of performance of this contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption, and the contract modified accordingly. However, no adjustment shall be made under this clause for any suspension, delay, or interruption to the extent that such performance would have been so suspended, delayed, or interrupted by any other cause, including the fault or negligence of the Contractor, or for which an equitable adjustment is provided for or excluded under any other term or condition of this contract.”

    The Suspension of Work provision provides that a “claim under this clause shall not be allowed:

    1. For any costs incurred more than 20 days before the Contractor shall have notified the Contracting Officer in writing of the act or failure to act (but this requirement shall not apply as to a claim resulting from a suspension order); and

    2. Unless the claim, in an amount stated, is asserted in writing as soon as practicable after the termination of the suspension, delay, or interruption, but not later than the date of final payment under the contract.”

    Stop-Work Orders are set forth in FAR 52.242-15 and provide that the “Contracting Officer may, at any time, by written order to the Contractor, require the Contractor to stop all, or any part, of the work called for by this contract for a period of 90 days after the order is delivered to the Contractor and for any further period to which the parties may agree. The order shall be specifically identified as a stop-work order issued under this clause.”

    Upon receipt of the order, the “Contractor shall immediately comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage.”

    Within either the 90-day period or within the extension of time agreed to by the parties, the contracting officer shall either “(1) cancel the stop-work order; or (2) terminate the work covered by the order as provided in the Default, or Termination for Convenience of the Government, clause of this contract.”

    Once the Stop-Work Order is cancelled or the time extension expires, the contractor “shall resume work. The Contracting Officer shall make an equitable adjustment in the delivery schedule or contract price, or both, and the contract shall be modified, in writing, accordingly if:

    1. The stop-work order results in an increase in the time required for, or in the Contractor’s cost properly allocable to, the performance of any part of this contract; and

    2. The Contractor asserts its right to the adjustment within 30 days after the end of the period of work stoppage, provided, that, if the Contracting Officer decides the facts justify the action, the Contracting Officer may receive and act upon a proposal submitted at any time before final payment.”

    In the event that the stop-work order is not cancelled and the work is terminated for convenience of the government, “the Contracting Officer shall allow reasonable costs resulting from the stop-work order in arriving at the termination settlement.” However, in the event of termination for default, “the Contracting Officer shall allow, by equitable adjustment or otherwise, reasonable costs resulting from the stop-work order.”

    Further differences between the two FAR provisions

    While appearing synonymous, the two FAR provisions are quite different and afford different remedies and time limitations on claim submission.

    While government-directed suspensions require claim submission “as soon as practicable” (and prior to final payment on the contract), Stop-Work Orders require that the contractor assert its rights to adjustment “within 30 days after the period of work stoppage.” Further, Stop-Work Orders are generally for a 90-day period, while suspensions are for a period of time convenient to the government.

    One of the key differences between the two types of orders is the types of recovery available to the contractor. While Suspension of Work clauses prohibit the recovery of profit, Stop-Work Order provisions do not.

    Our team will continue to share the latest developments and provide insights on the spread of coronavirus and potential impacts across sectors including the construction industry.

    Prepared by Susan N. Eccles
    susan.eccles@arlaw.com
    Baton Rouge
    P 225.378.3246