Alert
Alert
01.23.18
The past few days have been hectic. No matter your politics or your opinions on Deferred Action for Childhood Arrivals (DACA), the Children’s Health Insurance Program (CHIP), or the proposed border wall, the reality is that the federal government shutdown last Friday and re-opened yesterday. Contractors experienced cost growth and uncertainty as a circumstance. And a longer shutdown looms, with potentially more pervasive problems, should Republicans and Democrats not reach a broader agreement in 17 days.
Experienced contractors remember the impact of previous shutdowns. The 2013 shutdown was credited with more than $24 billion in lost economic impact; on a personal level, contractors were forced to lay off employees, delay projects and postpone investment, resulting in significant and largely unrecoverable losses for a number of companies.
Given the current political climate, proactive contractors will prepare for a longer shutdown. Essentially, the Anti-Deficiency Act governs what gets “shutdown.” Agencies cannot obligate funds or award contracts (or modifications or exercise option periods) without funding, absent exigencies. Accordingly, pending contracts cannot be awarded (including modifications and option years), notices to proceed cannot be issued, and “non-essential” government personnel are furloughed. The government furloughs significantly impact contractors, who rely on government personnel to make timely decisions, review and approve documents, and generally keep the wheels moving on projects. When federal employees are not allowed to work, decisions do not get made and actions are not taken, leading to delay costs and uncertainty for contractors. The just concluded three-day shutdown may have caused some of you to miss an ordering or shipping window, resulting in weeks or months of actual extended delay.
Delays during a period of government shutdown can be explicit or implicit. The Government can 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, but only if they properly document the cost and schedule impact of the stop work order. The Government Delay of Work clause and the Changes clause also may provide relief for damage caused by government inaction. While failure to document delays and costs can jeopardize cost recovery, failure to stop work can also result in financial loss. Auditors and contracting officers routinely disallow costs incurred during a stop work period, even if the Government ultimately receives the benefit of the work.
Government agencies may also simply fail to act during a shutdown, leading to constructive delays and ensuing contractor claims. Again, proper documentation and cost tracking of your delays and cost impacts is paramount to successfully recovering equitable adjustments. We wanted to remind you that there are a number of actions your companies can employ to minimize risk:
Contractor’s Immediate Action Items