Alert
Alert
09.15.23
The federal government’s new fiscal year begins on October 1, 2023. Given the current political climate, Congress may not agree on a new budget by the September 30 deadline. This creates a significant risk that the government will soon shut down for days or even weeks. If this happens, all executive branch operations will cease except for those deemed “essential,” a result which will significantly impact government contractors.
The government has shut down several times before. Operations shut down on five occasions during the Carter administration, and eight times during the Reagan administration. The 16-day shutdown in 2013 (during the Obama administration) caused more than $24 billion in economic losses. The most recent government shutdown, between December 22, 2018, and January 25, 2019 (during the Trump administration), cost the American economy at least $11 billion. Government contractors absorbed substantial losses during both instances.
To comply with the Antideficiency Act, agencies cannot obligate funds during a government shutdown absent exigencies. Accordingly, agencies cannot award contracts, modify them or exercise options. Furthermore, “non-essential” government personnel are furloughed. This significantly impacts contractors, who rely on government personnel to make timely decisions, approve deliverables and generally keep the wheels moving on government contracts. When federal employees are not allowed to work, decisions are not made and actions are not taken—leading to delays, uncertainties and additional costs for contractors.
Performance 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 for the cost and schedule impact of the stop-work order, but only if they properly document these cost or schedule impacts. 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.
Even without an explicit order, the government’s failure to act—such as failure to provide required information/approvals or property/equipment—can cause compensable constructive delays in performance. The Government Delay of Work clause (FAR 52.242-17) and the Changes clause (FAR 52.243-1/5) may provide relief for additional costs and/or performance time required due to government inaction. Again, proper documentation and cost tracking of contract delays are paramount to the successful recovery of an equitable adjustment.
Therefore, contractors will need to appropriately plan for an indeterminate government shutdown. Below are actions that can help minimize the impact of a potential government shutdown:
Before the shutdown:
During the shutdown:
Co-author Whitney Alston served as an Air Force contracting officer during two government shutdowns.