With sequester looming, clients have asked us whether the Government has the authority to tell contractors they can’t work at risk. Some clients have received notices stating, in effect, that if a contract or task order runs out of funding, the contractor may not continue to work “at risk.” So, what are the rules?

The important thing to remember about the upcoming sequester is that the sequester does not/will not change the Government’s contractual responsibilities in a government contract. Those responsibilities are governed by the contract clauses. The contract does give the government certain rights to order a stop work, a change of work, terminate, or partially terminate a contract. Each of these modifications/changes should be in writing by the contracting officer, and the contractor’s remedies for each are governed by clauses in the contract. Any order or request to slow down or change work that is made orally or from someone other than the contracting officer should not be followed but should be referred directly to the contracting officer.

For contracts that are incrementally funded, it is the contractor’s obligation to notify the Government when the contractor expects to reach a specific threshold of funding within 60 days (the limitation of funds or limitation of costs clause), usually the 75% level. Once the notice is given and the funding level has not been exceeded, then the contractor works as normal. Once the 100% funding level is reached and not extended, the contractor is allowed to stop work completely. Occasionally a contractor may agree to work at risk beyond the funding limit, but we always caution contractors never to do that because, in our experience, they don’t always get paid. The Government does have a right to order/prevent a contractor from working at risk without any obligation or liability to the Government once the funding level has been met. Our advice once the funding level has been reached is to give notice to the Government of reaching the funding limit, stop work, mitigate any potential damages relating to the stop to the extent possible, and track your costs relating to the stop work separately and carefully because the costs may be reimbursable.

For more information, contact MWL partner Bill Welch.