Now What? Can a Contractor Recover the Costs of the Shutdown?

    17 October 2013

    The federal government shutdown is finally over. Contractors returning to work are facing the questions of whether and how they can recover the costs caused by the shutdown. While dealing with the shutdown may be a first-time occurrence for many contractors and their contracting officers, the principles applicable to claiming costs caused by the work stoppage still are governed by the Federal Acquisition Regulation (FAR). The following sets out the basic principles and considerations.

    The Applicable Clauses

    The clearest path to cost recovery belongs to those contractors whose contracting officers issued stop-work orders under the Stop-Work Order Clause found at FAR 52.242-15. That clause entitles the contractor to an equitable adjustment in contract price and/or schedule for the impacts of the stopped work. Importantly, the clause requires submission of a claim within 30 days of the work stoppage.

    Other contractors may have instead received a written notice to cease performance in lieu of a formal stop-work order. The existence of written instructions paves the way for an argument that the instructions, even if not in the form of a stop-work notice, should be treated in the same manner and subject to the same procedures as set forth in FAR 52.242-15.

    Contractors who did not receive instructions from the government during the shutdown still have a recovery route. The Government Delay of Work Clause (FAR 52.242-17) provides for the adjustment of the contract price or delivery schedule when the actions of the contracting officer in the administration of the contract are “not expressly or impliedly authorized” by the contract. Recovery under the Delay Clause, however, is subject to an important limitation: the clause prohibits the recovery of profit. In addition, contractors should immediately notify their contracting officers if they intend to assert a claim under the clause. This is because it prohibits the recovery of costs incurred more than 20 days before the contractor notifies the government in writing of the delay.

    Finally, a contractor may also proceed under the Changes Clause (FAR 52.243-4) even in cases in which the work stoppage was communicated verbally. In those cases, the contractor must provide the contracting officer with a written notice describing the date, circumstances and source of the order and that the contractor considers it to be a change to the contract. Like the Delay Clause, damages under the Changes Clause will not encompass costs incurred more than 20 days before this written notice is made.

    Allowable Costs and Support

    If properly documented and supported, contractors can claim and potentially recover any otherwise reasonable and allowable costs incurred as a result of the shutdown. Contractors who set up separate charge codes to capture costs attributable to the work stoppage have a head start in cost documentation. Other companies should now capture and segregate their shut-down costs.

    The Stop-Work Order Clause expressly requires contractors to mitigate their costs during a work stoppage. Even absent this mandate, the government will surely question the necessity of each category of costs claimed. Accordingly, contractors must be prepared to justify their claimed costs, and explain their necessity. For example, if a company continued to pay employees during the shutdown, the government will question why they could not have been re-assigned to commercial work or to other government contracts that continued during the shutdown. Similarly, contractors should expect challenges to use of vacation pay to compensate workers during the shutdown, to indirect costs, and to the timing of costs as arising pre- or post-shutdown. Anticipating these questions, and addressing them up front in shut-down claims, should assist in reducing the time needed to resolve the claims.

    Conclusion

    These are extraordinary times for government contractors and government workers. For many, this may be their first shutdown experience. While they may collectively be facing uncharted waters, basic procurement principles still apply. Claims for shut-down costs must be timely filed and adequately supported. Basic norms of human behavior will also operate: contracting officers will be swamped when they return to work. Those contractors who submit their claims first will most likely be at the head of the line for resolution.