Government Shutdown Looms

Schwabe, Williamson & Wyatt PC

Schwabe, Williamson & Wyatt PC

Funding for the 2023 fiscal year will expire on September 30, 2023 at 11:59 pm EST. If Congress does not enact a new appropriations law, portions of the government will shut down. A shutdown will affect federal contracts differently, depending on whether the contract has already been funded, whether the work being performed is deemed essential, and whether the contractor depends on government personnel for access to a job site or approval (and whether that government personnel is itself essential or non-essential).

Under the Antideficiency Act, federal agencies may not: (1) make or authorize any expenditure or obligation in excess of what has been appropriated for the expenditure or obligation; or (2) involve the federal government in a contract or obligation for the payment of money prior to an appropriation unless otherwise authorized by law. 31 U.S.C. § 1341(1)(A), (B). Thus, although work should continue on contracts that are already funded, including most firm fixed-price contracts, if the federal government shuts down, agencies will not be able to award new contracts, modify existing contracts, exercise options that have not already been funded, or potentially pay for performance on existing contracts that are incrementally funded, such as cost-reimbursement contracts. Even for already funded contracts, however, contracting officers or other government personnel may be furloughed, which could potentially affect contractor performance.

In order to prepare for a possible shutdown, before September 30 contractors should consult any agency-specific guidance on contract performance during a government shutdown. Contractors should also meet with their COs and request clarification in writing about whether performance is expected to continue when funding will run out (if the contract is not already funded), and whether the work under the contract is deemed essential.

If the shutdown prevents the performance of the contract—for example, because funding will run out or because government personnel will not be available to inspect or approve the work—contractors should request that the CO issue a stop work order. See FAR 52.242-15. Alternatively, contractors might be able to negotiate a supplemental agreement that provides for temporary suspension of the contract. See FAR 42.1303(b).

Some costs that result from the shutdown might be recoverable. Contractors who perform cost-reimbursement contracts might be able to recover costs attributable to the shutdown. Contractors on firm fixed-price contracts might be able to recover costs attributable to the shutdown, depending on the contractors’ entitlement to an equitable adjustment. Accordingly, contractors should consider keeping track of all such costs, separate from the general costs associated with the contract.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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