As the end of the federal government’s fiscal year approaches on September 30, 2023, contractors need to begin preparing for the possibility of a government shutdown. In this current political climate, it is quite possible that Congress will not be able to pass a spending bill or enact a continuing resolution to keep the government open come October 1. Because agencies cannot obligate funds during a government shutdown, agencies are unable to award new contracts or exercise options on existing contracts. Additionally, as “non-essential” government personnel are furloughed, even contractors whose work is not paused as a result of the shutdown will likely face delays and additional costs. Most recently, the government partially shutdown for 35 days in December 2018 – January 2019, which is the longest in U.S. history.
Below, we provide tips to help contractors mitigate the potential impact of a government shutdown.
1. Prepare now for the possibility of a stop work order.
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 are not subject to this appropriations bill. These contracts are likely to continue. Incrementally funded contracts are likely to be affected 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.
That said, contractors should take steps now to prepare for the possibility of a stop work order. They should review their current prime contracts and subcontracts to familiarize themselves with relevant clauses, prepare personnel on what to do if they receive a notice to stop or suspend work, and have a plan in place to issue stop work orders to subcontractors.
2. 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. Agencies will designate someone from the contracting organization to have authority to act to recall employees and restart work.
3. 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. 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 because of a shutdown, 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.
4. Reduce the impact on employees.
Employees of federal contractors 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 usually work onsite and are locked out of the government office where they typically work, you will need to try to come up with a back-up plan, such as remote work, to continue performance until a stop work order is received. Communicate with your contracting officer regarding 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 employees 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, i.e., mandatory unpaid leave or reduction in hours, as a last resort, and be careful to comply with the Fair Labor Standards Act (FLSA) when it comes to furloughing exempt employees. Additionally, contractors must abide by the federal WARN Act and applicable state mini-WARN acts for any plant closings or mass layoffs.
Contractors should begin to plan now to mitigate the impact of a stop work order on their employees. While most government shutdowns last only a few days, contractors should also consider what they will do if the shutdown lasts a few weeks, or longer.
5. Understand the impact of a shutdown 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 bid protest related filings with the GAO. The safest approach is to assume all procurement and litigation deadlines remain unchanged, unless directed otherwise. Contractors should also expect solicitation due dates and new awards to come rapidly once the shutdown is over.
Stephanie Wilson is a Partner and the Director of Government Contracts at Berenzweig Leonard, LLP. She can be reached at swilson@berenzweiglaw.com.