A short-term continuing resolution (CR) has re-opened our government after nearly three days of shutdown. But contractors suffered cost impacts over the past few days and may face more significant issues on February 8 if a long-term deal is not reached.

Takeaways

• Communicate with your Contracting Officers early and often regarding approvals and responses to inquiries.
• Analyze current contracts. Assess contract funding levels, determine which contracts must continue, and become familiar with Suspension of Work, Stop Work, and Government Delay of Work clauses.
• Minimize financial damage and maintain continuity of operations and high employee morale.

Experienced contractors remember the impact of previous shutdowns. The 2013 shutdown was credited with more than $24 billion in lost economic impact; on a personal level, contractors were forced to lay off employees, delay projects and postpone investment, resulting in significant and largely unrecoverable losses for a number of companies.

Given the current political climate, proactive contractors will prepare for a longer shutdown. Essentially, the Anti-Deficiency Act governs what gets “shutdown.” Agencies cannot obligate funds or award contracts (or modifications or exercise option periods) without funding, absent exigencies. Accordingly, pending contracts cannot be awarded (including modifications and option years), notices to proceed cannot be issued, and “non-essential” government personnel are furloughed. The government furloughs significantly impact contractors, who rely on government personnel to make timely decisions, review and approve documents, and generally keep the wheels moving on projects. When federal employees are not allowed to work, decisions do not get made and actions are not taken, leading to delay costs and uncertainty for contractors. The just concluded three-day shutdown may have caused some of you to miss an ordering or shipping window, resulting in weeks or months of actual extended delay.

Delays during a period of government shutdown can be explicit or implicit. The Government can issue a formal Suspension of Work or Stop Work Order (FAR 52.242-14/15), which can last up to 90 days. Contractors may be eligible for an equitable adjustment, but only if they properly document the cost and schedule impact of the stop work order. The Government Delay of Work clause and the Changes clause also may provide relief for damage caused by government inaction. While failure to document delays and costs can jeopardize cost recovery, failure to stop work can also result in financial loss. Auditors and contracting officers routinely disallow costs incurred during a stop work period, even if the Government ultimately receives the benefit of the work.

Government agencies may also simply fail to act during a shutdown, leading to constructive delays and ensuing contractor claims. Again, proper documentation and cost tracking of your delays and cost impacts is paramount to successfully recovering equitable adjustments. We wanted to remind you that there are a number of actions your companies can employ to minimize risk:

Contractor’s Immediate Action Items

• Prepare contingency plans to re-assign personnel and resources from impacted Government projects to commercial and non-impacted government contracts. Prepare employees for the possibility of furlough or the possible use of paid leave. In the event a more prolonged shutdown forces an employer into a large-scale reduction in force, comply with the WARN Act or and State equivalent legislation. Communicate and negotiate similar contingency plans with your supply chain and business partners.
• Remember that work does continue on contracts that are already funded. That said, contractors should plan to bridge a gap of a few days or a few weeks caused by government furloughs. Communicate regularly with your Contracting Officers to obtain approvals and create action plans in the event of a more prolonged shutdown.
• Analyze your current contracts and become familiar with relevant Suspension of Work, Stop Work, and Government Delay of Work clauses. Avoid performing any work at risk.
• If contracts have remaining funding, do not stop work unless directed, but prepare for that occurrence. Train personnel on what to expect and what to do in the event of a suspension of work or a stop work order. Develop systems to ensure immediate notification to employees and the supply chain.
• If you do not receive a formal stop-work notice but your contract is delayed by government inaction, accurately and discretely track delays and costs associated with the shutdown period. Set up new account codes to track costs, and document everything. Some clauses provide greater rights than others for equitable adjustments, but all costs and time impacts should be discretely tracked to maximize recovery.