Government Contracts Intelligence Briefing

With a potential government shutdown looming, contractors have a lot of work to plan and protect themselves as best they can from possible disruptions in performance and payment. Below we will provide steps to take in anticipation of a shutdown and once a shutdown occurs.

Why does a shutdown happen?

The US Constitution (Article 1, Section 9, Clause 7) and the Anti-Deficiency Act prohibit the federal government from spending money that has not been appropriated by Congress. The Anti-Deficiency Act also does not allow the government to accept voluntary services. That means when funding expires, some contracts will be subject to stop work orders or cancellation while others that continue will have delayed payments. That means that contractors need to plan for potential contingencies in the event there is a government shutdown.

A Contractor’s Action Plan

Below are 10 suggested steps to prepare for a possible shutdown. It is important to keep in mind that each contract is different, and these steps may not fit every situation. Companies should contact their government contracts lawyer to get specialized guidance that is relevant to their situation.

1. Review contracts: determine contract type, how the contract is funded and which FAR clauses are included. Companies should also review their subcontract agreements to understand how work stops, notice requirements, and when payments are due.
2. Review communications from the contracting agency: only a contracting officer or an authorized representative can issue a Stop Work Order or a Termination for Convenience. If this happens, prime contractors should notify their subcontractors in writing immediately.
3. Inquire whether work can continue: even if contract funding remains in place, is a government workplace necessary to continue working and will that workplace be open during a shutdown? Are government employees necessary to continue working and will they be able to process payments?
4. Determine the status of employees: if they are overseas, does it make sense for them to come home? What is the employment status of contract employees?
5. Understand cost and expense issues: set-up separate cost centers to track expenses and costs related to winding down and restarting work and try to determine the impact on direct rates. Do not forget to mitigate and document whenever possible.
6. Beware of other potential issues: proposal submission dates may (or may not) change, awards may be delayed, SBA certifications may not be processed, and E-Verify may be unavailable.
7. Continue to prosecute protests and claims: a lot of the deadlines are statutory and may not be extended. Also, some of the tribunals are not directly funding by annual appropriations.
8. Contact bankers if necessary: companies should review their financial situation, be mindful of covenants in banking agreements and determine whether credit lines are available and needed.
9. Understand labor law obligations: such as whether the WARN Act applies and if there are obligations under the Service Contract Act (does a furlough equate to a break in service?) and any collective bargaining agreements.
10. When a shutdown ends, be prepared to start work quickly and seek reimbursement: check contracts to determine what deadlines exist to seek reimbursement, document start-up expenses, and submit claims related to the shutdown. Also, ensure invoices for existing work are issued.

As we move closer to an interruption in government funding, government contractors are on the front lines and will face some of the largest impacts. Companies in this position would be wise to prepare immediately to be ready.