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How the Government Shutdown Affects Government Contractors

October 4, 2013 Written by: Written by Adam Bonsky, EVP Government Markets. The government shut down impacts federal contractors differently, depending on the type of contract they have. But the consequences reach even farther, to those who provide goods and services to government contractors and federal workers.

Perhaps the most obvious impact of the federal government’s shut down is on government employees. But the economic consequences of the Congressional impasse on budget matters are far-reaching, trickling down to federal government contractors and the private sector.

For government contractors who are working on existing contracts, the effects of the shutdown depends on “the type of contract, (e.g., indefinite-quantity), the nature of the goods or services being procured (e.g., construction), and the facts and circumstances of the case.”

Indefinite quantity contracts generally permit the government to stop ordering goods or services once the guaranteed minimum has been ordered. Most government contracts include clauses which permit the government to reduce work performed under a contract, including the quantity of goods or services provided. Contracts may also include clauses which allow for suspension or delay of work by the government, or permit the government to order the contractor to stop work. The government may also terminate part or all of a contract, and cancel multi-year contracts. In some cases, contractors who are affected may be entitled to an adjustment, other compensation, or an extension of time to perform the work.

For contractors who have submitted bids on government contracts which have not yet been awarded, government agencies have no obligation to go forward with the contracts, even if solicitations have been sent.

This impacts hundreds of thousands of workers in the private sector – from the subcontractor who works on a construction project to the company that provides security at a federal building. But that’s not where it stops.

Say, for example, a family owns a diner near a federal building. During the time the government is shut down, no one is visiting the diner for lunch. Therefore the owners are not purchasing supplies to make improvements . . . and on and on.

It’s hard to say what the impact will be if Congress and the President don’t reach an agreement soon, but with the financial effects being felt already, we can be certain the shutdown will continue to pose challenges for all of us in one form or another.