With another government shutdown now in place, it is important for contractors to be informed on how their contracts may be impacted and prepare for the uncertainty that could be coming their way.
What Causes a Government Shutdown?
A government shutdown occurs when members of Congress are unable to come together to pass a bill funding the following fiscal year’s expenses. If a timely agreement cannot be made by September 30th (the last day of the previous fiscal year), this triggers a lapse in funding where several “non-essential” government functions are halted until the required bills are passed.
Over the last 50 years, government shutdowns have become increasingly more frequent. The most recent shutdown occurred between December 2018 and January 2019 and lasted an unprecedented 35 days.
Where do Contractors Stand?
A government shutdown can have significant and varied impacts on contractors as it can result in indefinite pauses in work, long delays in payment, failure to award new contracts, and the burden of unprecedented costs. Accordingly, contractors must take a proactive approach in anticipation of a government shutdown.
How to Prepare for a Government Shutdown?
1. Communicate with Your Contracting Officers
It is wise for contractors to establish a line of communication with their contracting officers (COs). While COs may have limited information prior to an official shutdown, they may still be able to provide insight regarding when important decisions are being made, whether contracts may be impacted by a stop-work order, and if special billing considerations apply.
In the event of a shutdown, each agency will develop an internal plan following guidance from the Office of Management and Budget. This agency action will determine what work and employees are deemed “essential” and what work should be stopped immediately. Upon notice of a shutdown, contractors should seek a written order from COs regarding whether their work should continue. Having a written record ensures that contractors are not working “at risk” and can support claims for reimbursement should any unexpected costs associated with the shutdown arise. Accordingly, it is good practice for contractors to contribute to this written record by emailing their COs following each phone call, summarizing what was discussed.
2. Assess Your Contracts
Contractors should assess their contracts to identify which contracts may be affected.
- Key Clauses: Contracts that contain funding clauses, stop-work clauses, and termination clauses may provide guidance regarding what procedure is expected in these circumstances.
- Funding: In the event of a shutdown, contracts that are fully funded will typically be allowed to continue work. However, incrementally funded projects may be halted until funds are replenished in the upcoming fiscal year.
3. Plan for Delays
During a government shutdown, few are safe from delays. While some contracts are more susceptible to stop-work orders than others, even fully funded contracts may experience delays should they depend on action from furloughed employees or if they require access to federal facilities.
Despite the unexpected nature of these delays, contractors are still expected to mitigate the effects of the shutdown. Accordingly, contractors should create a flexible internal plan by which they can communicate these impacts to employees, organize wind down and ramp up efforts, and assess their finances to ensure that they will have the funds necessary to make it through the shutdown period.
4. Document All Impacts
In the event of a stop-work order or any other disruption, contractors should document all costs incurred. This documentation should be kept separate from normal business expenses and can include costs associated with winding down, ramping up, accelerating work, or other labor costs. Additionally, contractors should account for all disruptions in operations and impacts on time.
Once shutdown ends, these records can be used to recover costs and request time extensions, but the extent of recovery may depend on the level of documentation and the reasonable mitigation efforts taken.
