Government contractors working for the Department of Education (DE), the United States Agency for International Development (USAID), and other agencies like the National Science Foundation (NSF) and Consumer Financial Protection Bureau (CFPB) are under immense pressure amidst the uncertainty brought on by the new presidential administration. There are reports that payments to contractors under active contracts are or were frozen. While in some cases temporary restraining orders have nominally “unfrozen” some of these dollars, it is still an open question whether contractors will actually timely receive what they are owed. On other contracts, agencies have sent out stop work orders, with no timeline for resolution. More significantly, the administration is indicating that DE and USAID will be either reconfigured or eliminated. That means many of the contracts held by US companies and nongovernmental organizations (NGOs) could be paused or terminated.
Three difficult situations many contractors may be facing right now:
1. Stop work orders or suspension of work.
2. Withheld funds for work already performed.
3. Termination – either for convenience or for default.
While, contractors should respond by following the framework of Documenting, Notifying, and Escalating their claims to the agency, in general, there are strategic choices in each situation the contractor must make to mitigate losses, preserve entitlement to claims, and ensure speedy recovery. These are discussed below.
Stop Work Order / Suspension of Work
Contracting Officers (COs) may force contractors to cease performance either via a stop work order (FAR 52.242-15) or through a Suspension of Work (FAR 52.242-14). A stop work order permits the CO to pause all or part of the work for a period of 90 days but with the possibility of extension.
To be legally effective, the document must identify itself as a stop work order. FAR 52.242-15 (“The order shall be specifically identified as a stop-work order issued under this clause.”). Under a stop work order, the contractor is generally required to minimize costs incurred during the 90-day period. The order then might be lifted either to resume the work or to terminate the contract. Contractors are entitled to an “equitable adjustment” to the contract either extending the period of performance, increasing the contract price, or both.
Contractors may claim reasonable profit if they incur costs as a result of the stop work order. The contractor only has 30 days from cancellation or expiration of the stop work order to make a claim for a damages incurred due to the stop work order. This can be achieved by sending a letter, Request for Equitable Adjustment (REA), or Certified Claim (Claim) to the CO. REAs and Claims will be discussed later in this article.
A suspension of work under FAR 52.242-14 differs from a stop work order in three key ways. First, although both allow for “an adjustment. . . for any increase in the cost of performance of this contract,” a suspension of work explicitly disallows the inclusion of profit in a REA or Claim. Second, the notice period is shorter, requiring contractors to submit a written claim within 20 days of notice that the work is suspended, delayed, or interrupted. Finally, while a stop work order and suspension of work both may be directed by the CO, a suspension of work can be claimed by the contractor if the government fails to act, resulting in the suspension, delay, or interruption of the work.
Remember our framework when deciding how to proceed in the face of a stop work order or suspension of work: Document, Notify, and Escalate. Here, that means contractors should first identify costs associated with contracts that are paused and document what it will take to either put the work on hold or wind down operations. At the same time, contractors should immediately notify the government that it considers the pause to have cost and/or time impacts to the work. Finally, contractors should consider bringing an REA or Claim. See below for more details on Claims.
Late or Withheld Payment
The government is required to timely pay its bills for uncontested work that has already been performed by its contractors, per FAR 52.232-25. The Prompt Payment Act assesses a monthly compounding interest penalty (currently 4.625%) for payments that are more than 30 days late.[1] Contractors are entitled to payment for work that was performed and is uncontested by the government.[2]
The ongoing disruptions to agencies like DE and USAID mean that payment is likely to be delayed on many contracts soon. The administration has already tried to create blanket freezes on certain contracts. But perhaps just as critically, many government employees are being put on leave, fired, or are choosing to resign. This almost certainly will result in COs and other administrators, whose job it is to direct disbursement of payments or make decisions about the contract, will suddenly be unable to carry out their duties. In fact, it may be wise to send notices to as many email addresses noted in the prime contract as possible and consider copying other agency officials at a higher level.
As soon as payments for work are delayed by 7 days or more, contractors should begin documenting the precise costs owed and calculating any costs that they might be incurring because of the government’s delay. Immediately placing the government on notice that the payment is delayed and that the contractor may be incurring additional costs in writing via the CO is the next step. Finally, contractors should consider escalating if the government is unresponsive or delays payment further. Claim options are discussed in detail below.
Termination
The government is permitted under almost every contract to end the work via a Termination for Convenience (T4C) or a Termination for Default (T4D). See FAR Part 49. A T4C entitles a contractor to a settlement including payment for work already performed and costs associated with ending the contract early. Contractors are expected to reasonably mitigate their losses as soon as they receive a formal notice of termination. FAR 49.601 requires written notice of termination – either via electronic notice or via letter. A notice of termination will instruct the contractor to “stop all work, terminate subcontracts, and place no further orders. . .” FAR 49.601-1.
Termination Settlement Proposals (TSPs) are negotiated between the prime contractor and the government following a T4C. Depending on the type of contract a different Standard Form, such as SF1436 (Settlement Proposal Total Cost Basis) are provided to the government covering reasonable costs to terminate the contract. It is important to note that the contractor still has the option to file a Claim even if the agency fails to timely respond to a TSP after termination.
Most contracts will be terminated for the government’s convenience, rather than for default because a T4D requires the government to prove that the contractor has or will likely fail to perform its obligations. A T4D is a serious matter than can affect the contractor’s prospects of receiving work from the federal government. In the case of T4D, the contractor will have immediate rights to appeal to the Boards of Contract Appeal or to the Court of Federal Claims.
Strategic Options for Contractors
In general, contractors should follow the Document, Notify, and Escalate framework in responding to any of the three situations discussed. But more specifically, given the extraordinary circumstances contractors should be preparing certified claims as quickly as feasible.
REA or Claim?
Typically, contractors would weigh whether to bring an REA or file a Claim requesting a final decision from the CO. There are many reasons to consider both. But contractors in early 2025 are operating under an abnormal set of facts. Notably, the possibility of reorganization or removal of entire agencies, significant changes to agency mission and contract priorities, and maybe most importantly, the impact of gaps in key government personnel developing due to firings and resignations.
Under normal conditions, contractors often choose to start with an REA. It is a softer approach to the agency that can yield positive results via negotiation between the contractor and agency without resorting to litigation. That could still be the right choice, but right now the best option may be to proceed directly to a certified claim. That is because the government is not obligated to respond to an REA within a certain time frame, or at all. And given the chaos and confusion at numerous agencies right now, response times are going to be even more delayed than normal.
As a result, many contractors should strongly consider pursuing a certified claim to recover damages resulting from stop work orders, delayed payments, or termination. A Claim has three main elements: (1) a written demand; (2) seeking as a matter of right; (3) the payment of a money in a sum certain. James M. Ellett Const. Co., Inc. v. U.S., 93 F.3d 1537, 1542 (Fed. Cir. 1996). Contractors cannot proceed to an appeal or litigation until they have filed a Claim and received a final decision from the CO.
How quickly can a Claim move?
As soon as a contractor can identify a “sum certain” that it is owed by the agency, it can prepare and issue a Claim to the CO. A 60-day clock starts ticking for the government to respond upon delivery of the Claim to the CO. Under FAR 33.211, a CO must render a final decision within 60 days or else the regulations consider the lack of response a “deemed denial” and allow the contractor to file an appeal or a lawsuit either before the Boards of Contract Appeal or the Court of Federal Claims. This means even if a contractor does not receive a final decision they can still proceed to litigation.
Can the agency make payment?
Contractors may also be concerned that the agency will be able to make payment even during litigation due to re-allocation of funding or other changes to the agency. But filing a Claim means even if the federal agency lacks funds or legally cannot pay a settlement, the government will still be able to pay the contractor through what is called the Judgment Fund.
What if the agency is changed or its employees are fired?
As noted, if the CO does not respond, a Claim will still allow the contractor to proceed to the Boards or Court of Federal Claims. Herein lies another strategic choice. Taking the appeal to the Armed Services Board of Contract Appeals (ASBCA) or Civilian Board of Contract Appeals (CBCA) will mean an agency attorney is assigned to the case. If an appeal is taken to the Court of Federal Claims, however, the Department of Justice (DOJ) is counsel representing the United States and the agency. Agency counsel may be involved, but the DOJ has ultimate say about whether to settle the case.
Additional benefits of Claims
Filing a Claim preserves a contractor’s right to an appeal to the Boards or Court of Federal Claims, creating certainty that they will receive a decision entitlement to time or money for the government’s actions. It also forces government action, independent of the agency process.
In addition to the Prompt Payment Act, which requires payment of interest at the treasury rate, a Claim will also begin to generate interest if the contractor receives a favorable judgment from a court or board under the Contracts Disputes Act (CDA). See 41 USC § 7109(1).[3] The Prompt Payment Act interest is automatic, but Interest on Claims only begins to accrue from the time that the Certified Claim is filed. An REA does not trigger this interest provision under the CDA.
Conclusion
There are many decisions contractors must make on a short timeline faced with the uncertainty at many federal agencies. If contractors follow the Document, Notify, and Escalate framework while making strategic choices to mitigate costs and set themselves up for recovery of damages springing from significant agency changes.
[1] Contractors can calculate the interest payment on the Treasury.gov calculator.
[2] Note that disputed funds are more complicated – for instance where the government claims the costs incurred were due to the contractor’s own fault or are outside the scope of the contract.
[3] See FAR 33.208(b) (“Simple interest on claims shall be paid at the rate, fixed by the Secretary of the Treasury as provided in the Disputes statute, which is applicable to the period during which the contracting officer receives the claim and then at the rate applicable for each 6-month period as fixed by the Treasury Secretary during the pendency of the claim.”)