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Preparing for Potential Government Shutdown: Essential Steps for SCA Government Contractors

September 26, 2023

As the federal government’s fiscal year-end approaches on September 30, 2023, SCA (Service Contract Act) government contractors face the looming specter of a government shutdown. In the current political climate, it’s uncertain whether Congress will reach a budget agreement in time, increasing the risk of a government shutdown that could last for days or even weeks. Such an event would have a significant impact on government contractors, but there are steps you can take to prepare and minimize the potential fallout.

  1. Communicate Early and Often:

To appropriately plan for a government shutdown, establish open lines of communication with your contracting officers as early as possible. Regular communication will help you stay informed and better anticipate potential disruptions.

  1. Review Your Contracts:

Analyze your existing contracts to understand their funding levels and become familiar with suspension of work, stop-work, and government delay-of-work clauses. Equipping yourself with this knowledge will be crucial in the event of a shutdown.

  1. Develop an Internal Action Plan:

Prepare an internal action plan to mitigate financial damage and ensure the continuity of your operations and employee engagement. Planning ahead can help you navigate the uncertainties of a government shutdown effectively.


Why Is Preparation Crucial?

Government shutdowns have occurred before, with significant economic consequences. The shutdown in 2013 resulted in over $24 billion in economic losses, while the one in 2018-2019 cost the American economy at least $11 billion. Government contractors bore a substantial portion of these losses.

During a government shutdown, agencies are restricted by the Antideficiency Act from obligating funds, which means they cannot award new contracts, modify existing ones, or exercise contract options. Additionally, non-essential government personnel are furloughed, affecting contractors who rely on timely decisions and approvals to maintain project momentum.


Navigating the Shutdown:

During a shutdown, performance delays can be explicit or implicit. Contractors might receive a formal suspension of work or stop-work orders, which can last up to 90 days. Proper documentation of cost and schedule impacts during these periods is critical for equitable adjustment claims.

Even without explicit orders, government inaction can lead to unexpected monetary delays. Understanding clauses like the Government Delay of Work and Changes clauses can help contractors seek relief for additional costs and performance time required due to government inaction.

What Contractors Can Do to Minimize Impact –

Before the Shutdown:

Maintain regular communication with contracting officers to obtain approvals and create action plans.

Train personnel on suspension of work and stop-work orders and develop systems for immediate communication within your organization.

Develop contingency plans for re-assigning personnel and resources, preparing for furloughs, and negotiating contingency plans with supply chain partners.

During the Shutdown:

If directed to stop work, implement contingency plans and accurately track delays and costs.

If no formal stop-work order is issued but delays occur due to government inaction, discreetly track reasons for the delays and associated costs.

Document all relevant facts and time impacts to maximize potential recovery.

In summary, preparing for a potential government shutdown is essential for SCA government contractors. By taking proactive steps and developing a comprehensive plan, you can minimize the impact and navigate the uncertainties that may lie ahead.