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Navigating the Storm: Essential Steps Government Contractors Can Take During a Shutdown

A government shutdown, caused by a lapse in appropriated funding, is an inevitably disruptive event for federal contractors. While the duration and severity of the impact are uncertain, proactive planning is crucial to minimize losses and prepare for a swift restart.

The specific impact on your business depends on factors like whether your contract is already funded, if the work is deemed “essential,” and if performance requires access to federal facilities or approvals from non-essential federal employees.

Proactive Preparation: Before the Shutdown Hits

Contractors can significantly minimize the effect of a potential shutdown by engaging in planning and proactively seeking guidance from their contracting agencies.

1. Assess Your Contract Portfolio and Risk

A thorough review of your contracts is the foundational step in preparedness.

Funding Status: Identify whether your contracts are fully funded. A fully funded contract means that funds are obligated to cover the price or estimated cost. A lapse in funding does not always require a stop in performance, especially if the contract is fully funded. For incrementally funded contracts, assess current funding levels to determine how long performance might continue, keeping notice requirements in mind.
Resource Dependence: Determine whether performance requires government resources, personnel, or access to federal facilities. Even fully funded work may be hampered if government personnel are unavailable to inspect deliveries, perform tests, administer contracts, or provide required approvals.
Stop-Work Order (SWO) Clauses: Verify which contracts include the Stop-Work Order clause (such as FAR 52.242-15), which permits the agency to issue a formal work suspension notice. If the agency cannot fund a contract, the Contracting Officer (CO) should issue a SWO, which specifies the work to be suspended and provides guidance on minimizing costs.

2. Immediate Communication with the Contracting Officer

Open communication with the CO regarding performance expectations is vital, and contractors should document all verbal communications.

Clarify Essential Activities: Ask the CO for guidance on which activities, if any, should continue during a shutdown, especially if your contract requirements might be considered essential.
Resolve Pending Issues: Attempt to finalize any outstanding issues, such as contract amendments, before the federal fiscal year ends. Once a shutdown begins, the CO may be furloughed or too busy managing emergencies to handle ordinary requests.

3. Communicate with Employees and Partners

Keep employees informed to allay anxieties. If one contract is likely to be halted, explore opportunities to reassign employees to other projects.

Alert Subcontractors and Vendors: Contact your subcontractors and vendors in advance. Alert them to the possible shutdown, discuss the prospects for continuing performance, and consider the possibility of delaying orders or deliveries.
Review Subcontract Clauses: Review contracts and supply agreements for relevant clauses related to suspension of work or termination for convenience. Remind all teaming partners to document and mitigate costs.

Action Steps: Managing Through the Shutdown

Once a shutdown is underway, focus shifts to documentation, cost mitigation, and strict compliance.

1. Maintain Strict Documentation and Mitigation

Contractors should advise the CO about any unforeseen costs or delays, document those costs, and take reasonable measures to mitigate expenses.

Tracking Costs: It is often possible to recover costs incurred due to the shutdown, including overhead, delay, and standby costs, provided you have reasonable documentation. Establish specific billing codes to track shutdown, restart, and standby costs.
Standby Costs: Standby costs, such as paying highly key personnel to retain them, should be documented. If you pay key personnel to stay, perform market research to demonstrate how difficult it would be to hire replacements.
Comply with Directives: If work is suspended, respond to performance directions only from the CO. Any work performed during a stoppage without the CO’s instruction is performed at your own risk.

2. Follow Funding Notice Requirements

If you are performing under an incrementally funded contract, be extremely careful to comply with the specific notice requirements found in the availability of funds clause, such as FAR 52.232–20 Limitation of Cost and FAR 52.232–22 Limitation of Funds.

3. Prepare for Recovery

When the work stoppage is lifted, contractors have rights afforded by the Stop-Work Order clause.

Request for Equitable Adjustment (REA): Contractors have the right to assert an equitable adjustment in the delivery schedule or contract price, or both, within 30 days after the end of the work stoppage. As the shutdown continues, begin preparing your Request for Equitable Adjustment (REA) so you can submit it promptly once the suspension is lifted.
Deadlines: Remember to assume that any statutory or contractual deadline (like filing a bid protest or contract claim) remains unchanged throughout the shutdown period.

Acting proactively is the best way to minimize the unavoidable disruption caused by a government shutdown.

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