The Threat of a Government Shutdown and What Contractors Need to Know and Do Now

Construction & Government Contracts Update

Date: August 29, 2017

Key Notes:

As we approach the end of the government’s fiscal year, 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 the impact of any shutdown on your contracts, including costs incurred.

As we approach the end of the U.S. government’s fiscal year (September 30), you may have heard in the news that the government might experience a shutdown if Congress does not pass, and President Trump does not sign, the appropriations bills that are necessary to keep many government agencies open and running. So far the House has passed only a “minibus” spending bill that would provide funding for certain departments (Defense, Energy, Interior and Veterans Affairs), while the Senate has passed no appropriations bills, and President Trump has threatened to veto any spending bill that does not include funding for the controversial U.S.-Mexico “border wall.” Although threats of, and actual, government shutdowns are not new (with the last one occurring in 2013), and although 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 now for potential stop work orders or terminations of their contracts. This article provides some tips and guidance that government contractors should consider and follow to lessen or avoid the potential impact of a pause in government funding.

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 Defense Department 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 with them so that 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 timely information to you. 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 Multiple/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, what to do with employees who are working on a contract affected by a stop work order or termination (assign them to other contracts or projects? hold mandatory company training? have them take vacation? lay off some employees (a last resort)?); how to notify affected employees of the shutdown (and what to do during the shutdown and when to come back to work); how to ensure access to government buildings or databases during the shutdown (or, if access is denied because the database is unavailable or the building is locked up, then how to document that); and what to do with regard to your subcontractors and vendors. Cash flow issues in the event that the government stops or delays paying invoices should also be addressed. Because no one can accurately predict how the current administration will implement a shutdown, 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, so that the contract price can be adjusted if and as necessary later to account for any increased costs. For example, these costs may include contract shutdown and startup costs once the shutdown is over, or the costs of stopped or terminated subcontracts, or even the increased costs of performing contracts not stopped or terminated by the shutdown. 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. 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.

What About the Debt Ceiling?

To compound things even further, the government is also facing yet another debt ceiling crisis at the end of September, and if the debt ceiling is not increased by September 29, agencies may not be able to pay valid invoices. Therefore, if you can, submit your invoices as soon as you are authorized to do so under your contract, so you will get them paid first (possibly with interest) when the crisis is over. Also, keep in mind that Congress’s refusal to raise the debt ceiling will not by itself, absent an actual shutdown, result in stopped or terminated contracts, and in fact government agencies may continue to award new contracts and task orders.

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 your company and you. The attorneys in the Thompson Hine Government Contracts practice group 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

Tom Mason
202.263.4168
Thomas.Mason@ThompsonHine.com

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

Ray McCann*
202.263.4152
Ray.McCann@ThompsonHine.com

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

or any member of our Construction or Government Contracts practice groups.

*Ray is not admitted to practice in the District of Columbia; he is admitted only in California and Virginia. His practice is supervised by principals of the firm.

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