Congress’s use of stopgap measures – Continuing Resolutions – to fund the Government create the potential for shutdown of the Government if a Continuing Resolution expires without another funding measure in place. When the Government shuts down, the Government offices which rely upon appropriated funds execute their “orderly” shutdown plans, and the affected Government employees who are not considered excepted (a.k.a. “essential”) will be furloughed. To prepare for such a shutdown, Contractors should take action (before contracting officers leave for furlough) to protect their contractual and financial rights that could be at risk due to the unavailability of funding, government personnel, or facilities.

The lapse of appropriations means that the Government cannot award new contracts or task orders that require current year appropriations, nor can it apply new incremental funding or exercise options that would require such appropriations. Contracts, task orders, and incremental funding using prior year appropriations that remain available for obligation may still be awarded, assuming contracting personnel are at work to award them.

Contracts already awarded and funded can continue, but the shutdown may have unpredictable effects on performance and profitability. Some contractors work hand-in-hand with the soon-to-be-furloughed Government employees, or perform functions that rely upon the continuous operation of other Governmental functions (which are now about to cease). Others contractors may be awaiting critical decisions from Program or Contracting Officials, or just need a federal employee to let them into their workspace. As a result, for some contractors there will no doubt be miscommunications, disruptions, delays, lost productivity and efficiencies, cost increases, and maybe even later accelerations of deadlines. Moreover, shutting down a large portion of the Government involves numerous details, many of which will not be tended to before the furloughs — meaning that this period of uncertainty will extend for an indefinite period.

If faced with a Government shutdown, Contractors should take these actions before and during the shutdown to protect their interests:
 

• Know who are the relevant excepted officials in the contracting or program offices with whom you will be able to communicate during the shutdown.
• Ascertain whether the government will issue a stop work order. If one is issued, or if the absence of government personnel makes performance impossible, mitigate your costs to the best of your ability. If the shutdown is extended, layoffs may be prudent.
• Be careful before exceeding a funding ceiling. Even when the government reopens, there is no guarantee that the government will reimburse any costs incurred during the shutdown period.
• If your contract is funded, continue performance to the best of your ability until directed otherwise. Document any difficulties encountered due to the lack of government guidance and direction, and do your best to mitigate those difficulties.

It is impossible to predict all of the problems that the shutdown will cause, but acting carefully can mitigate the impact of those problems.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.