Federal Contract Pauses and Cancellations: Protect Your Finances with Expert Insight
By TED ROSE, ROSE FINANCIAL SOLUTIONS
For small to mid-sized government contractors and nonprofits reliant on federal funding, contract down-scopes or terminations can disrupt financial stability. Whether caused by shifting agency priorities, budget reductions, or efficiency initiatives like those from the Department of Government Efficiency (DOGE), these changes present significant financial challenges. The silver lining? The Federal Acquisition Regulation (FAR) provides structured avenues for cost recovery—if navigated with precision. Here’s how expert insight can help you turn a potential financial setback into a recoverable event.
Key Factors to Navigate the Shift
Understand the Trigger
- Down-scope: If the government reduces the scope of your contract—whether due to DOGE-mandated cuts or agency redirection—you are entitled to an equitable adjustment to cover ongoing work and a settlement for what’s lost (FAR 52.249-2).
- Termination: A complete contract termination, often stemming from efficiency reviews or funding shifts, means you must focus on recovering incurred costs.
- Why It Matters: Pinpointing the cause sharpens your claim strategy and ensures compliance with applicable FAR clauses.
Time Is Money
- Deadlines Matter: You have 90 days to file a downscope claim and one year for termination settlements (FAR 52.249-2).
- Act Fast: Any delay—internal or external—reduces your chance of full recovery.
Maximize Your Cost Recovery
Beyond direct costs like labor and materials, consider:
- Post-termination expenses, such as inventory wind-down.
- Claim preparation costs, including accounting and legal efforts.
- Downscope efficiency losses, capturing the financial impact of reduced work scope.
- Pro Insight: Many contractors overlook these additional costs, leading to under-recovery.
Profit and Balance Considerations
- Completed work qualifies for profit recovery (FAR 49.202).
- If the contract was unprofitable, adjustments are required (FAR 49.203).
- Precision Counts: Errors in these calculations can significantly shrink your payout.
Subcontractor Ripple Effect
- Subcontractor costs must be included in your settlement (FAR 49.108).
- Challenge: Managing subcontractor claims requires expertise and meticulous documentation.
Building a Strong Claim
- Craft a solid settlement proposal (FAR 49.206) that withstands scrutiny.
- Leverage FAR 31 to identify and justify all allowable costs.
- Prepare for audits—detailed records are key to approval.
Your Path to Recovery
Federal contract changes—whether driven by efficiency mandates like DOGE or broader budget shifts—test your resilience, but they don’t dictate your outcome. Acting swiftly, maximizing cost recovery, and building a strong claim can make... Read more in the ROSE Community.
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Ted Rose
In 1994 Ted Rose founded Rose Financial Solutions (ROSE), the Premier U.S. Based Finance and Accounting Outsourcing Firm. In 2010, the Blackbook of Outsourcing named ROSE the #1 FAO firm in the world based on client satisfaction. As the president and CEO of ROSE, he provides executives with financial clarity. Ted has also acted as the CFO for a number of growth companies and assisted with various rounds of financing and M&A transactions.
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