Government Shutdown Impact on Contractors

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The federal government faces a potential shutdown if Congress doesn’t agree on funding by the September 30, 2023 deadline. If no funding plan exists, the shutdown will commence at 12:01 a.m. on October 1, 2023. The shutdown duration is uncertain.

A shutdown is initiated by a deficiency in allocated funding, underscoring the government’s responsibility to adhere to Congress-approved expenditures. The presence of a divided government and ongoing Congressional disputes regarding spending levels increase the likelihood of a shutdown or a sequence of brief continuing resolutions.

While much of the information in the article was provided in a blog in 2019, the impact remains the same. While the news focuses on the implications for federal employees and services such as Social Security checks, airport screening, national parks and museums, and the ability of the IRS to conduct business, the impact on federal contractors is not insignificant.

A helpful resource to better understand federal contracting legal issues when there is a lapse in funding is the Congressional Research Service report titled, Government Procurement in Times of Fiscal Uncertainty, dated April 6, 2012 (R42469). A copy of this report can be viewed at https://fas.org/sgp/crs/misc/R42469.pdf  Below is a summary of critical issues:

• Both contractors and the agency personnel administering contracts are paid with appropriated funds. Generally, if there is a lapse in appropriated funds, this would cause a lapse in the ability to award and manage contracts.
• The federal government generally has broad discretion to cancel a solicitation during a procurement before
• The federal government also has broad discretion regarding exercising an option. Contractors are not entitled to any recovery of lost profits if the government chooses not to exercise an option.
• Funding lapses generally prevent the government from entering new contracts or allocating new funding to cost-reimbursement contracts.
• The government is permitted to make scope reductions, alter the performance period, or terminate contracts.

Please remember that each circumstance is different, so there is no single answer to many of the questions. It is important to note that past government shutdown experience has shown that some agencies are willing to work with contractors and consider equitable adjustments or other tools, such as overtime, to offset lost work. Contractors should document lost hours and the impact on deliverables should this option become available.

Additionally, some unintended contract events occurred due to previous shutdowns, including delays in invoice processing, the shutdown of E-Verify, and the limited functionality of the Civilian Board of Contract Appeals.

This is not a legal opinion of what contractors should do during a shutdown; instead, it’s an effort to direct you toward helpful information.