The Looming Government Shutdown: What Contractors Can Do to Prepare

The government has shut down several times before. Operations were suspended five times during the Carter administration and eight times during the Reagan administration. The 16-day shutdown in 2013 (during the Obama administration) caused more than $24 billion in economic losses. The most recent government shutdown, between December 22, 2018, and January 25, 2019 (during the Trump administration), cost the U.S. economy at least $11 billion. Government contractors absorbed substantial losses during both instances.

To comply with the Antideficiency Act, agencies cannot obligate funds during a government shutdown unless there are exigencies. As a result, agencies cannot award contracts, modify contracts, or exercise options. In addition, “non-essential” government personnel are furloughed. This significantly impacts contractors, who rely on government personnel to make timely decisions, approve deliveries, and generally keep government contracts moving. When federal employees are not allowed to work, decisions and actions are not made, resulting in delays, uncertainty, and additional costs for contractors.

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Delays in performance during a government shutdown period may be explicit or implicit. The government may 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 for the cost and schedule impact of the stop-work order, but only if they adequately document these cost or schedule impacts. While failure to document delays and costs can jeopardize cost recovery, failure to stop work can also result in financial losses. Auditors and contracting officials routinely disallow costs incurred during a stop-work period, even if the government ultimately receives the benefit of the work.

Even without an explicit order, the government’s failure to act (e.g., failure to provide required information or approvals or required property or equipment) can cause compensable constructive delays in performance. The government’s work delay clause (FAR 52.242-17) and changes clause (FAR 52.243-1/5) can provide relief for additional costs or required performance time due to the government’s inaction. Again, proper documentation and tracking of the costs of contractual delays is critical to successful recovery of an equitable adjustment.

Therefore, contractors will need to plan appropriately for an indefinite government shutdown. Below are measures that can help minimize the impact of a potential government shutdown:

Before closing:

Communicate regularly with your contracting officers to obtain approvals and create action plans for an extended shutdown.
Review your current contracts to familiarize yourself with government stop-work, suspension of work, and work delay clauses. Train staff on what to expect and what to do in the event of a work suspension or stop-work order. Develop systems to ensure immediate notification to employees and the supply chain of a stop-work order.
Prepare contingency plans to reallocate staff and resources from affected government projects to commercial and non-affected government contracts. Prepare employees for the possibility of temporary suspension of employment or possible use of paid leave. Communicate and negotiate similar contingency plans with supply chain and business partners.

During the closure:

If you are ordered to stop work, implement contingency plans and accurately and discreetly track delays and associated costs. If a longer shutdown forces a large-scale reduction in the workforce, comply with the WARN Act and equivalent state legislation. Avoid performing any work that poses a risk.
If a formal stop work order is not issued, but the contract is delayed due to government inaction, accurately and discreetly track the reason for the delays and the costs associated with the suspension period. Document all relevant facts and time impacts and establish new account codes to track costs and maximize potential recovery. Do not suspend work on funded contracts unless ordered to do so in writing by the contracting officer.

Co-author Whitney Alston served as an Air Force contracting officer during two government shutdowns.