Stop-Work Order Claims

What are Stop-Work Order Claims?

A stop-work order claim arises when a contractor or subcontractor seeks compensation or an adjustment to the contract due to a formal directive to halt work on a project. Stop-work orders are typically issued by the project owner or contracting authority and require the immediate suspension of all or part of the construction activities. These claims are a critical part of contract administration, as they allow contractors to recover costs and time lost due to the suspension, ensuring that the financial impact of the interruption is not unfairly borne by the contractor.

When Do Stop-Work Orders Occur in Construction Contracts?

Stop-work orders can occur in both public and private construction contracts. In federal contracts, the authority to issue a stop-work order is often found in the Federal Acquisition Regulation (FAR) 52.242-15, which allows the contracting officer to suspend work for various reasons, such as funding issues, design changes, or unforeseen site conditions. In private contracts, stop-work orders may be issued due to disputes, safety concerns, or changes in project scope.

For example, in a federal construction contract, a stop-work order may be issued when Congress delays budget approval, causing a temporary suspension of funding for ongoing projects. In a private construction project, a stop-work order might occur after a structural engineer identifies a serious foundation issue that poses safety risks, requiring immediate investigation and redesign.

What Costs Can Be Recovered in a Stop-Work Order Claim?

Stop-work order cost recovery is governed by the terms of the contract and applicable law. Generally, contractors may recover:

• Direct costs: Labor, materials, and equipment costs incurred up to the date of the stop-work order.
• Idle equipment and labor costs: Costs associated with equipment and personnel that cannot be reassigned during the suspension.
• Demobilization and remobilization costs: Expenses for shutting down and restarting the project.
• Extended overhead: Additional home office and field overhead costs incurred due to the delay.
• Escalation costs: Increases in material or labor costs resulting from the suspension.
• Professional services: Legal, accounting, and consulting fees required to prepare, support, and document the claim are also typically recoverable as indirect costs.

For federal contracts, reimbursable costs stop-work are typically limited to those that are reasonable, allocable, and allowable under the contract. Documentation is key; contractors must maintain detailed records to substantiate their contract suspension claim.

How Contractors Can Mitigate Risk from Stop-Work Orders

Contractors can take several steps to mitigate the risks associated with stop-work order construction:

1. Contract Review: Ensure the contract includes clear provisions regarding stop-work orders, cost recovery, and claim procedures.
2. Documentation: Maintain thorough records of all costs, communications, and impacts related to the stop-work order.
3. Communication: Promptly notify the owner or contracting officer of any impacts and seek written clarification of the order’s scope and duration.
4. Resource Management: Reassign labor and equipment where possible to minimize idle costs.
5. Legal and Financial Advice: Consult with legal and financial advisors to ensure compliance with claim requirements and maximize recovery.

FAQ

What qualifies as a stop-work order claim?
A stop-work order claim qualifies when a contractor or subcontractor incurs additional costs or delays due to a formal directive to halt work and seeks compensation or time extension as allowed under the contract.

Who issues stop-work orders in federal or private contracts?
In federal contracts, stop-work orders are typically issued by the contracting officer. In private contracts, the project owner, construction manager, or their authorized representative may issue such orders.

Are subcontractors eligible to file stop-work order claims?
Yes, subcontractors can file stop-work order claims if their work is directly affected by a stop-work order issued by the prime contractor or owner, provided their subcontract includes appropriate provisions.

What are the risks of not responding to a stop-work order properly?
Failure to respond properly can result in unrecoverable costs, breach of contract, or even termination for default. It may also limit the contractor’s ability to claim additional time or compensation.

How long do contractors have to submit a claim?
Contractors typically have 30 days to submit a stop-work order claim under FAR 52.242-15, unless the Contracting Officer grants an extension. For private contracts, the deadline varies based on the contract terms, often ranging from 10 to 30 days. Prompt notification and timely claim submission are essential to preserve your rights and avoid disputes.

Final Thoughts

Stop-work order claims are a vital mechanism for contractors to seek fair compensation and time adjustments when work is suspended. By understanding the triggers, recoverable costs, and best practices for risk mitigation, contractors can better protect their interests and ensure project continuity. For tailored advice on stop-work order cost recovery and contract suspension claims, consult with experienced construction advisors.