The US Congress must agree on a new budget by midnight on September 30, 2023 to support the US federal government’s new fiscal year on October 1. With a shutdown appearing to be on the horizon, countless federal programs will be left in limbo, with the contracts for supplies and services under those programs also affected. Contractors that take a proactive approach to preparing for a potential shutdown and act quickly upon governmental guidance will be better positioned to manage expectations and risk.
With the current political climate, the September 30 deadline may pass with no budget approval, leading to a federal government shutdown that could last days or weeks. In the event of a shutdown, all nonessential executive branch operations will end, including the function of some contracting officers. Agencies will not be able to obligate funds in most cases to comply with the Antideficiency Act, meaning they cannot award or modify contracts or exercise options.
Each contracting situation is different. Some contracts may be sufficiently funded past the imminent shutdown while some others may be subject to an exception allowing continued performance.
To mitigate the impact of a funding lapse, contactors should assess the following considerations:
REVIEW EACH CONTRACT
Not all contracts will be affected by a shutdown. As noted above, some may be sufficiently funded through the shutdown while others may be deemed essential or otherwise authorized by law. For instance, contracts for sustained US Department of Defense operations, protection of federal buildings, and emergency and disaster services will continue during a shutdown. This means impacted contractors may be permitted—or required—to continue performing under some contracts but not others.
COMMUNICATION IS KEY
The responsible contracting officer (CO) remains the point of contact for any government contract for the duration of the shutdown. The CO—not the contractor—will decide how to proceed in response to a funding lapse, whether through a stop-work order, change order, or termination. Contractors who attempt to take unilateral action may find themselves with unreimbursed costs for unauthorized work or claims (or termination for cause) for a failure to continue performing essential functions.
It is crucial that contractors obtain explicit guidance from their CO on how to proceed during a shutdown. While it is important to establish communication pre-shutdown, it is equally important to recognize that the CO may not have much guidance before any shutdown takes place. Contractors should also maintain regular lines of communication with their subcontractors, keeping them informed of any governmental direction.
WRITE IT DOWN
COs and their supervisors will likely be scrambling to fill the gaps as the ordinary gears of the government grind to a halt. Contractors may be offered a vague promise of future consideration to continue performing. Without formal direction from the CO, a contractor has little guarantee of collecting on that promise.
Written direction in the form of a stop-work order, change order, or other appropriate documentation can save contractors the delay and expense of contesting or litigating certain claims for equitable adjustment if the expected result does not materialize after funding is restored.
HAVE A PLAN
Contractors should have a plan of action should a shutdown occur, including informing employees who are working on government contracts whether a contract is affected by a stop-work order, change order, or termination. Contractors must also communicate with their subcontractors and vendors to flow down any contractual changes, or risk owing subcontractors for work that cannot be provided to, or paid for by, the federal government.
Because the government may stop paying invoices during a funding lapse, contractors should be prepared to address any accounting and cash flow issues that may result.
WHEN IN DOUBT, MEET YOUR DEADLINES
Several government offices will close during a shutdown, but that funding lapse does not simultaneously toll relevant deadlines. Timing considerations for filing protests, claim appeals, or proposals should be considered as if no shutdown is occurring. Some agencies may extend deadlines following a shutdown, but such extensions are not guaranteed, and any contractor not meeting the deadlines in place at the start of the shutdown may find themselves out of luck.
Contractors should have a firm understanding of their contracting obligations and maintain an open dialogue with their COs to understand the effects of a shutdown on their obligations as early as possible.