Government Shutdown Threatened (Again): What Contractors Need to Know and Do Now

Construction & Government Contracts Update

Date: January 18, 2018

Key Notes:

As another government funding deadline approaches, we recommend that contractors take the following steps to ensure they are prepared for the possibility of a government shutdown:

  • Analyze your contracts and communicate with your contracting officers in advance of any possible government shutdown.
  • Develop contingency plans for actions necessary in a shutdown.
  • Keep meticulous records to document a shutdown’s impact on your contracts, including costs incurred.

As funding runs out (again) on January 19, 2018, the federal government will shut down unless another temporary spending bill is agreed, passed and signed. The House and Senate are currently negotiating a temporary funding extension until February 16, and at some point, Congress will need to negotiate and pass a budget for the rest of the fiscal year. In the meantime, the threat of a government shutdown looms again.

We last reported on this issue in August 2017, as the end of the U.S. government’s fiscal year (September 30) approached. Although threats of and actual government shutdowns are not new (with the last one occurring in 2013), and while not all contracts are affected by them (e.g., contracts for activities considered essential to the protection of life and property), government contractors should be planning and preparing for potential stop work orders or contract terminations. We provide here again some tips and guidance to lessen or avoid the potential impact of a pause in funding and a government shutdown.

Analyze Your Contracts

First, as mentioned above, some contracts may not be affected by a government shutdown because they are for activities that are otherwise authorized by law (for example, 41 U.S.C. § 11 allows the Department of Defense to continue to buy food, fuel, medical supplies, etc. to sustain its operations during a funding gap) or activities that protect life and property (for example, protection of federal buildings and emergency and disaster assistance). Or your contract may not be funded through annual appropriations. Or some agencies’ appropriations bills may be passed but not others. In other words, you may be permitted or required to continue to perform some of your contracts, but not others. How will you know?

Talk to Your Contracting Officers

Reach out to your contracting officers on each contract now to establish or enhance your lines of communication, so when decisions are made regarding which contracts and/or tasks under them will continue and which will be halted, your contracting officer will be able to provide you with timely information. You can then take appropriate actions regarding your affected employees and vendors and the mitigation and documentation of costs.

But keep in mind that your contracting officer may not have much information or guidance for you before a shutdown occurs, because each agency will (or should) have its own shutdown implementation plan and will only execute it based upon direction from the president and the Office of Management and Budget. What he or she does tell you may depend upon, among other things, how long the shutdown is anticipated to last.

Finally, if you wait to contact your contracting officer until after the shutdown occurs, that may be too late because government contracting personnel are often deemed to be “non-essential” and thus won’t be around to take your call.

Develop Flexible Contingency Plans

Next, contractors should have or develop contingency plans and be prepared to execute them based upon the direction received from their contracting officers. These plans should include, among other things, plans for employees who are working on a contract affected by a stop work order or termination; directions for notifying affected employees of the shutdown (and what to do during the shutdown and when to come back to work); instructions on how to ensure access to government facilities during the shutdown (or, if access is denied, how to document that); and guidance on what to do with regard to your subcontractors and vendors.

Cash flow issues that may arise in the event the government stops or delays paying invoices should also be addressed. No one can accurately predict how the administration will implement a shutdown, and contractors should plan for multiple contingencies and be flexible enough to handle the unexpected.

Keep Good Records

Fourth, contractors should meticulously document the effect of any shutdown on each of their contracts, including costs incurred, so the contract price can be adjusted if and as necessary later to account for any increased costs. For example, contract shutdown costs and startup costs once the shutdown is over, the costs of stopped or terminated subcontracts, or even the increased costs of performing contracts not stopped or terminated by the shutdown.

In addition, make sure that any direction you receive from the government comes from someone with the proper authority under your contract to provide that direction; otherwise, you might end up working “at risk” and not be able to recoup your additional shutdown-related costs. Also, normally simple contract administration matters like the exercise of contract options may be affected, giving the contractor certain additional rights in dealing with these matters.

The Bottom Line

Before, during and after a government shutdown, it is not likely to be “business as usual,” and taking a proactive approach to anticipating and handling a shutdown’s effects on your contracts will make life easier for you and your company. The attorneys in our Government Contracts and Construction practice groups can help you with planning for and resolving any specific or unusual issues.

FOR MORE INFORMATION

For more information, please contact:

Jeffrey R. Appelbaum
216.566.5548
Jeff.Appelbaum@ThompsonHine.com

Joseph R. Berger
202.263.4193
Joseph.Berger@ThompsonHine.com

Daniel M. Haymond
216.566.5896
Dan.Haymond@ThompsonHine.com

Tom Mason
202.263.4168
Thomas.Mason@ThompsonHine.com

Ray McCann
202.263.4152
Ray.McCann@ThompsonHine.com

Francis E. Purcell, Jr.
202.263.4118
Chip.Purcell@ThompsonHine.com

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