Stop-Work Order Claims: What Costs are Reimbursable?

When a stop-work order is issued, it is crucial for contractors to understand which costs are allowable for reimbursement. These costs can vary depending on the specifics of the contract and the nature of the work being halted. 

Allowable Costs on a Stop-Work Order Claim

1. Direct Costs: These include costs directly associated with the work that has been stopped. Examples include labor costs for employees who were working on the project, materials that were purchased specifically for the project, and subcontractor costs that were incurred before the stop-work order was issued. 

1. Indirect Costs: These are costs that are not directly tied to the project but are necessary for the overall operation of the business, such as overhead costs, including utilities, rent, and administrative expenses.

1. Demobilization Costs: These costs are associated with winding down the project, such as costs for safely storing materials or securing the worksite, and travel expenses for relocating employees.

1. Idle Facility Costs: If the stop-work order results in facilities or equipment being idle, the costs associated with maintaining these idle facilities can be claimed. This includes costs for storage, maintenance, and site security. 

1. Employee Costs: Costs related to managing employees during the stop-work period are also allowable, this can include costs for temporary reassignments, layoffs, or other HR-related expenses.

1. Legal and Accounting Costs: Fees for legal advice, consulting services to document and quantify the claim, and any other professional services required to support the claim are allowable costs.

Important Considerations:

• Documentation and Compliance: It is essential to document all costs incurred during the stop-work period. This includes maintaining records of all communications, costs, and efforts to minimize expenses. 

• Timely Submission: While stop-work orders are intended to be temporary, usually no more than 90 days, the current environment is uncertain; government contractors should act quickly to submit Requests for Equitable Adjustments (REAs).

• Communication: Maintain clear and ongoing communication with the contracting officer to ensure all costs are documented and approved. If you cannot reach your contracting officer, consult with an attorney to help discern who will be responsible for processing the REA.

• Professional Guidance: Given the complexities involved, it is often advisable to seek professional guidance to ensure compliance with all requirements and to maximize the recovery of allowable costs.

The bottom line

Understanding and documenting allowable costs is crucial for contractors to navigate the financial implications of a stop-work order effectively. By following these guidelines, contractors can ensure they are adequately compensated for the costs incurred during the stop-work period.

Navigating terminations, claims, and settlement packages can be complex, but you don’t have to do it alone. Aprio’s Government Contracting and Nonprofit teams are here to guide you every step of the way. Whether you need support with claims work, termination settlements, or strategic planning, we’re ready to help. 

Connect with an Aprio team member.  

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