What is a Stop Work Order?
Under the Standard Acquisition Clauses and Conditions (SACC provisions), Contracting Authorities have the right to suspend or stop all or part of the work provided under a contract for up to 180 days by issuing a suspension or stop work order (stop work order). This is an absolute right - no reason is required to issue a stop work order.
As the government responds to the COVID-19 emergency, a stop work order could be used to suspend contracts for non-essential goods or services, or to enable the government to realign its personnel and resources where needed most.
What Happens if a Stop Work Order is issued?
- immediately comply with requirements of the stop work order;
- seek to minimize costs incurred to comply with the stop work order;
- not remove any part of the work from the premises without prior written consent; and
- continue to provide the work, if any, that has not been suspended by the order.
What happens at the end of the suspension period?
At the end of any suspension period, the Contracting Authority must:
- cancel the stop work order; or
- terminate the contract (note, this can occur in whole or in part).
If the stop work order is cancelled:
- contractors must resume the suspended work as soon as practicable;
- the period of performance for the suspended work can be extended by a period of time at least equivalent to the period of the stop work order (the Contracting Authority can determine if an additional extension period is required); and
- contractors may seek an equitable adjustment under the contract. While there are no available guidelines regarding what constitutes an "equitable adjustment", the underlying premise is that the adjustment should be fair and unbiased.
If the contract is cancelled:
- in part, the contractor must resume the remaining work and immediately comply with the requirements of the partial termination notice; and
- in full, the contractor must immediately comply with the requirements of the termination notice.
What Costs are Contractors entitled to?
If the work is suspended or the contract terminated, contractors are entitled to be paid for the work delivered and inspected in accordance with the contract, in addition to the following (not to exceed the total contract price):
Work Suspension and Resumption:
- additional costs incurred as a result of the suspension; and
- a fair and reasonable profit.
Work Suspension and Termination:1
- additional costs incurred as a result of the suspension;
- costs reasonably and properly incurred during performance the contract, to the extent the contractor has not already been paid;
- costs incidental to the termination of the work, including statutorily-obligated wages;2 and
- a fair and reasonable profit.3
How to Prepare for and Manage a Stop Work Order
Preparing for a Potential Stop Work Order:
Whether or not work under a contract is currently continuing without interruption, the unprecedented nature of the COVID-19 pandemic means that changes can occur - quickly and without warning. At a minimum, contractors should:
- Review the provisions of their contracts that deal with stop work orders to determine what rights and remedies are available, how a stop work order can be implemented and what happens once an order is given.
- Consider the operational impact of a stop work order, including personnel retention, management of subcontractors and the supply chain.
- Consider the impact of a partial stop work order and under what circumstances performance of the remaining work becomes unmanageable (for example, resources that are no longer fully employable, yet are still required to fulfill the remaining requirements).
- Consider whether the closure of most government buildings has effectively resulted in a "constructive" stop work order. As noted in our earlier bulletin, if at any time it appears that performance of the contract is at risk, contractors should consider whether submission of an excusable delay claim is warranted.
Responding to a Stop Work Order:
Assess the impact. For example:
- Can the contract be completed as originally contracted for, if partially suspended?
- If the answer is no, what adjustments to the remaining scope of work need to be made to enable performance?
- Will suppliers need to be replaced? If so, do they need to undergo Supply Chain Integrity assessments? Can these assessment be completed by the government in a timely manner?
- What are the costs of retaining resources to recommence work when the order is lifted?
- Is the contract still commercially viable and, if not, are there modifications to the work that could be made to return the contract to a viable state?
- Is it or will it become impossible to perform the remaining aspects of the work, such that a "frustration of contract" should be claimed?
Retain proper books and records of all costs incurred and note these and other factors that could support a claim for an equitable adjustment. For example:
- identify any impact on the performance of the contract, including adjustments to deliverables and delivery dates;
- identify any loss or unanticipated costs such as:
◦ capital expenditures that are no longer recoverable;
◦ costs for key personnel, particularly those identified in the contract, that had to be retained to ensure that work could be resumed immediately or costs to re-engage personnel;
◦ costs of complying with the stop work order, resumption of the work or the termination notice, including winding-up and delivering work-in-progress; and
◦ costs incurred in the performance of the work that was not suspended, such as costs incurred to protect the health and safety of employees to enable them to continue to provide the work.
- clearly document performance impacts, losses and unanticipated costs as all claims remain subject to government review and/or audit.
Remain in close contact with the Contracting Authority during the suspension period to keep them appraised of the anticipated and actual impact of the order and any changes that arise over time, such as barriers to work resumption. Open lines of communication are even more important at this time. Ensure you document the situation clearly with the Contracting Authority, and if you are provided with verbal instructions (such as, for example, to retain personnel or to continue to buy materials or produce deliverables) , confirm these instructions in writing immediately.
The same considerations that were applied to a stop work order should be applied to a partial termination. If the contract is no longer commercially viable, immediate engagement with the Contracting Authority should occur. When a stop work order is cancelled, contractors may also seek an equitable adjustment for the affected conditions of the contract.
The management of resources and personnel whenever a stop work order is made can be difficult; the COVID-19 pandemic adds a significant and unprecedented degree of complexity. Planning now for the possibility of such an event, including ensuring open lines of communication with the Contracting Authority and gathering the necessary data to support an additional costs, equitable adjustment, an excusable delay claim or, ultimately, frustration of contract, is crucial.
Marcia Mills is procurement counsel with the Fasken Ottawa office and has 20+ years of private and public sector experience, including over a decade as counsel to the Department of Public Procurement and Services Canada, advising on major Crown defence procurements and the Defence Production Act. She can be reached at email@example.com.
1 Note that if the contract is terminated for default or is abandoned by the contractor, these costs are not available.
2 Contactors in certain jurisdictions may have a statutory obligation to pay severance, in which case, it is arguably part of wages required to be paid by statute. For more details on severance pay in a lay-off, see "Implementing Temporary Layoffs".
3 A fair and reasonable profit is dependent on the type and value of the contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.