In May, President Trump tweeted: the “country needs a good shutdown in September.” That prospect is now upon us. For Government contractors, the fallout from a threatened shutdown—let alone an actual one—ranges from inconvenient to disastrous. Here’s how to best prepare.
Experienced contractors remember the impact of the 1996 and 2013 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 unpredictable political climate, wise contractors will proactively invest their time in preparation for a possible shutdown. Some have assessed the likelihood of a shutdown at well over fifty percent, with the debt ceiling and border wall funding being the main sticking points. Ironically, Hurricane Harvey may be the catalyst that forces Congress to address issues like emergency relief, and convince opposing political forces to delay major battles like the debt ceiling and border wall until later this year or early 2018.
During a shutdown, the Anti-Deficiency Act governs what gets “shut down.” Agencies can’t obligate funds or award contracts (or modifications or exercise option periods) without funding. The impact on contractors is immediate and obvious—absent emergencies and exigencies, 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 contactors. Contractors are well aware of how even a three day delay can cause one 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. There are a number of actions contractors should take to minimize their risks:
Contractor’s Immediate Action Items