On September 30, 2023, Congress passed a temporary stopgap funding bill, which allows the federal government to continue to operate until November 17, 2023. At which time there will be a government shutdown. While Congress has 4 days to avert a shutdown, there is no plan in place, and every indication suggests that there will be a shutdown. Below are some essential questions and issues that government contractors should consider to be better equipped to respond with a shutdown-ready plan.
1. How Does a Government Shutdown Affect Government Contracts?
In theory, a shutdown should not affect the performance of government contracts. In general, contractors with existing federal contracts that have remaining periods of performance and obligated funding should continue to maintain performance during a federal shutdown. Unless, specific actions are taken by the Contracting Officer (“CO”) or the funding is exhausted.
Additional complications can arise if performance depends on government employees, government facilities are closed, or government contracts that require additional funding during the shutdown. Contractors should consider the following:
Understand What it Means to be in Compliance with the Anti-deficiency Act and Funding Obligations:During a government shutdown, federal agencies must adhere to the Anti-deficiency Act, codified at 31 U.S.C. § 1341, which prohibits agencies from obligating funds beyond the amounts appropriated. As a result, during a shutdown, the government cannot obligate funds to commence performance on new contracts or complete unfunded portions of already awarded contracts. While contractors are generally expected to maintain their performance, they should anticipate potential disruptions, such as stop work orders, contract options not being exercised, delayed payments, and postponed procurement activities.
Contractor Work Continuation:If a government contract still has funding available, contractors can generally continue working on the project unless the CO terminates the contract or issues a stop-work order under Federal Acquisition Regulation (“FAR”) 52.242-15 or a suspension-of-work order (for construction contracts) under FAR 52.242-14.
Exhaustion of Funding: When the funding for a contract runs out, contractors should cease work to avoid being considered volunteers (working without authorization).
Claims for Costs and Subcontractor Oversight: Contractors may prepare claims for costs incurred if the CO terminates the contract, issues a stop-work order, or allows funding to run out. Prime contractors must carefully oversee their subcontractors to ensure they are also in compliance with the terms and conditions of the contract during a shutdown.
2. How Should a Contractor Handle its Employees Working Under a Government Contract During a Government Shutdown?
Clear Communication with Contracting Partners: Contractors should communicate with the CO and ask for clear direction in writing as to which activities will continue during a shutdown. Contractors should actively track the status of funding on each contract. Constant communication with the CO is important, particularly for incrementally funded contracts subject to the Limitation of Funds clause under FAR 52.232-22.
Continued Compensation: Contractors should continue paying salary and benefits to their employees working on government contracts during each pay period. These costs may be recoverable.
Transfer to Other Work: Contractors may consider transferring employees to other work, although costs associated with payments made to transferred employees may not be recoverable.
Document Everything: In the event of a shutdown, contractors should keep detailed records of all work performed by employees under all government contracts as well as the impacts on the schedule for performance. Contractors should maintain a detailed record of all actions, communications, and instructions provided by the government. It is equally important to track and minimize any costs incurred during the shutdown. These costs should be documented, and notice should be given to the CO, which may be recoverable through an economic adjustment or modification when the government resumes normal operations.
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