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Posted on Sunday, January 21, 2018

The Government Has Shut Down – Now What?

The federal government failed to pass a spending bill Friday night, resulting in a government shutdown. Here, we summarize five things contractors should consider when faced with a government shutdown.

  1. Contractors Must Continue Work until Directed to Stop.

Implementation of the government shutdown is decentralized and not every agency, activity, or program is impacted the same way. Your contracting officer is the only one who can issue a stop work order and let you know if your program is shut down or not. This can change from day to day, depending on which federal employees are furloughed and which may be called back.

Not all contracts will be affected by the government shutdown. For example, service contracts for a single undertaking may have been fully funded before the shutdown, and thus not subject to this appropriations bill. These contracts are likely to continue. Incrementally funded contracts are likely to be effected by the absence of appropriations and are more likely to be put on hold.  It’s also unlikely that any new task orders will be awarded during the absence of appropriations. There are also some contracts whose obligations are authorized or necessarily implied by law, or that focus on national security or emergency preparedness, that will continue running.

  1. If Given a Stop Work Order, You MUST Stop Work.

A stop work order can be applied to any type of contract, can be complete or partial, and can come at any time. The Government must explicitly state what is covered by the stop work order.

If you receive a stop work order, you must stop work and you must instruct your subcontractors and vendors to do the same. While Congress has retroactively paid its federal workforce during a shutdown, the Government generally is not required to reimburse a contractor for any work done while a stop work order is in effect. Any such work is performed “at risk” to the contractor.

Contractors should assume that their contracting officers will be hard to reach. Most federal contract administration personnel are furloughed, and furloughed employees will not have access to email or government cell phones. Every agency will designate someone from the contracting organization to have authority to act to recall employees and restart work.

  1. Document, Account, Mitigate.

Contractors should document all communications with the Government about the shutdown and any stop work orders, identify the impact of any stop work orders, and mitigate costs. Stop work orders don’t have to be written, and therefore telephone communications to stop work must especially be documented. Keep detailed accounting records of all stop work and start-up costs, segregating the accounting for these costs where possible. Contractors should capture all time spent on winding down and starting back up these contracts, even on firm fixed price contracts.

Contractors are permitted to seek an equitable adjustment for costs incurred as a result of stopping the work, reassigning personnel, and restarting contract performance. Contractors may be entitled to recovery of expenses incurred with shut down, although this generally does not include back pay or consequential damages. Documentation is key to show that the contractor followed instructions from the government and mitigated its damages with respect to its employees, subcontractors, and vendors. Contractors should promptly seek recovery of these costs following the resumption of the stopped work.

  1. Reduce Impact on Employees.

Contractor’s employees are going to be facing a lot of uncertainty as well. They will wonder whether they have to report to work the next day, or if they will receive their next paycheck. Not only do contractors need to consider the impacts of the shutdown on employee relations and morale, but contractors must also show the government that it has mitigated any unnecessary expenses in responding to the shutdown.

If you have not received a stop work order from your contracting officer, but your employees are locked out from the government office where they typically work, you will need to try to come up with a back-up plan to continue performance until a stop work order is received. Communicate with your contracting officer on your options.

If you do receive a stop work order, consider what options would have the least impact on your employees. Perhaps there is mandatory company training that can be completed during this time. There may be other projects that you can productively use the employee on. If necessary, you can direct your employees to use their PTO during this time. If you have employees in a role that may need to be called back quickly, determine if you can continue to pay them during this time to keep them on “stand by” status. Contractors should use a furlough as a last resort. Contractors must abide by the federal WARN Act for any plant closings or mass layoffs.

  1. Impact on Procurement Activities.

The Government generally will not be able to make contract awards or exercise options obligating new funds during the shutdown. Nevertheless, contractors should continue to comply with all proposal deadlines. Bid submission dates are not usually extended, even if there is no one at the agency to receive them. Debriefing schedules for awards made before the shutdown may be affected, however the shutdown does not extend any deadlines for filings with the GAO. The safest approach is to assume all procurement and litigation deadlines remain unchanged, unless directed otherwise. Contractors should expect solicitation due dates and new awards to come rapidly once the shutdown is over.

 

Berenzweig Leonard is teaming up with Red Team Consulting for a monthly newsletter featuring upcoming contracts, key protest decisions, legal updates, events, and more. This post was published in the January 2018 Monthly Insights newsletter. To sign up for Monthly Insights, please click here.

Stephanie Wilson is a Partner at Berenzweig Leonard, LLP. She and Terry O’Connor lead the firm’s Government Contracts practice. Stephanie can be reached at swilson@berenzweiglaw.com.