It’s looking increasingly likely that the federal government will shutdown at midnight on September 30, 2023. If it happens it will cause significant disruptions for many federal contractors. Here are some high-level things contractors can do to protect their interests.
Review Contracts
Outcomes for federal contractors during a shutdown vary widely based on the unique terms and conditions of each contract. Differences in payment structures, deliverable schedules, and performance monitoring will all have different impacts if Congress fails to reach a funding agreement. Understanding the specific terms at play in your contract will help with mitigating risks and positioning for potential cost recovery.
For example, many federal contractors faced work stoppages when the government shut down in October 2013. One contractor, Ameratek, was performing a contract with monthly performance periods and invoiced the agency for the full month of October, despite only working seven days due to the shutdown. The agency rejected the invoice and demanded the shutdown days be prorated. Ameratek appealed the denial to the ASBCA. The Board granted the appeal in Ameratek, ASBCA Nos. 59149, 59395, 2015-1 BCA ¶ 35,808, because the funding terms anticipated monthly performance requirements; that the government only took advantage of some of these days to have the contractor perform work did not reduce its payment obligations under the Contract.
Ameratek is a unique case decided on the specifics of its contract. Nevertheless, it highlights how a good understanding of contract terms can open the door for at least partial cost recovery. It’s also a good example of how government shutdowns can be costly to the federal government.
Look Out for Stop Work Notices
When the government shuts down, it will also instruct contractors performing nonessential services to temporarily suspend performance. Any work that a contractor performs after a stop work notice is received will be “at risk,” which is to say that the contractor may not be reimbursed for its efforts.
There are several contract provisions in the Federal Acquisition Regulations (“FAR”) that allow the federal government to suspend performance of a contract. Examples of these clauses include FAR 52.242-14, Suspension of Work, FAR 52.242-15, Stop-Work Order, and FAR 52.242-17, Government Delay of Work. The applicable clause will vary by contract.
Regardless of the clause incorporated, each of these provisions operates in the same general way. The contracting officer will provide written notice to the contractor to suspend work. From there, the government will have the option of either lifting the suspension, allowing the suspension period to lapse, or terminating the contract. If work under the contract is reinstated, the contractor may be entitled to performance extensions or reimbursement of reasonable costs.
As is always the case with federal contracting, be mindful of deadlines. Several of these clauses incorporate specific deadlines for claiming incurred costs. Failure to adhere to deadlines can result in claims being waived.
Document, Document, Document
Practically speaking, the world does not come to a standstill during a federal shutdown. Decisions still need to be made to protect materials from weather damage, confirm work is not being lost, and be prepared to restart performance at moment’s notice. All of these activities can incur costs.
Reimbursement of these expenses varies by contract, but any request for equitable adjustment will be sunk without adequate supporting documentation. Good practices include requesting all communications occur by email and maintaining detailed expense accounting for all costs incurred during the shutdown. Having this information on hand will better position contractors for success in claims.
Subcontractor Management
Prime contractors also need to be mindful of managing subcontractor activities and expectations during a government shutdown.
Prime contractors need to promptly issue stop work orders to their subcontractors. A prime contractor’s failure to promptly communicate that the government has instructed it to stop work could result in the prime contractor incurring subcontractor expenses that are not compensable.
Once work is stopped, prime contractors need to manage subcontractor expectations. A government shutdown will delay payments to the prime, which can impact payments to subcontractors. Setting expectations with respect to payment can mitigate the potential for subcontract disputes to arise while the shutdown plays out.
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Federal shutdowns are seldom good news. There is a substantial amount of collateral damage for federal employees who are furloughed and federal contractors who must stop work. This damage translates to expense. Understanding your contract, adhering to stop work orders, and documenting expenses can help mitigate this damage.
If you need help navigating the looming federal shutdown, contact us to set up a consultation.
Practical Tips for Riding Out a Federal Shutdown was last modified: September 25th, 2023 by