Federal Government Shutdown: What a Contractor Should Know and Do
Subscribe to our Newsletter




By Topic  |   By Industry  |   By Author  |   By Date  |   Useful Links
Federal Government Shutdown: What a Contractor Should Know and Do 
government contractor and technology  business advisory 


By: Rebecca Kehoe

At a Minimum:  Government Contractors should analyze the possible circumstances, discuss them with their respective Contracting Officers, and make plans in case of a shutdown.  Contractors would then have to decide what to do with employees while they wait for government business to resume.  A contractor will have to make business decisions as to whether to continue to pay employees during a furlough.  Please note there is no guarantee a contractor will be reimbursed.


Alan Chvotkin, PSC's executive vice president and general counsel, presented a series of questions contractors need to start answering this week to properly prepare for any shutdown in the coming days.  As you'll see below, the questions Chvotkin posed are complex and lack easy answers:


Do you know where your employees are? 

  • Might be different if you have workers at a government facility.  They may be denied access during a shutdown.  "You still need to know who's where and how to get in touch with them," Chvotkin said.
  • Are people on official travel? "You'll have to tell them to get on the next flight back," Chvotkin said.  Or, "Do you tell them to stay in the Bahamas a few extra days?" because it costs less for them to stay put.  "There are no pure answers here.
  • Employees on leave, vacation, or sick leave should continue in that status.

What do you do with your employees in the meantime?

  • Try to minimize the government's liability and your own by considering work reassignments.  It may be possible to re-task employees to a related project that's not affected.  There may be other projects where they can be used.
  • Maybe reassign them to training.  Get them to finish the mandatory training they haven't completed.
  • Some may take vacation or leave.  It's still compensable; however, because they're not working, you don't run afoul of rules prohibiting voluntary work.
  • Furlough:  It's a last resort, but if there's no other work available, it may be necessary.
  • Some workers may be required to be on "standby" and not allowed to take on additional work due to the uncertain duration of a shutdown.  This happens frequently with medical support personnel and others supporting deployed forces.

Do you need a federal employee in the office in order to complete your work? 

  • To approve payments?
  •  To accept deliveries of goods or services?
  • To provide access to government facilities, personnel, or information (including classified information)?
  • For any other reason?

What kinds of costs are incurred that might be recoverable? 

  • Material/vendor costs.
  • Certain employee costs -- with or without an advance agreement.
  • Recovery of "unabsorbed" overhead. ( Cost incurred must be offset by insurance coverage paid.)
  • Generally, no recovery of back pay or "consequential damages."
  • Government ratification of intervening contractual actions.



Other questions to consider:

  • Is your cash flow sufficient to accommodate a delay in payments?
  • Can you fund B&P costs while waiting for delayed awards?
  • Can you afford to pay your employees and not be reimbursed?
  • What are the business implications of additional continuing resolutions for your key customers?
  • What are any other potential implications?

Other things to remember: 

  • Analyze your current situations.
  • Plan for multiple possible events.
  • Document, document, document.
  • Account, account, account.
  • Mitigate where possible.
  • Communicate before, during, and after.
Alan Chvotkin, PSC's executive vice president and general counsel, presented a series of questions contractors need to start answering this week to properly prepare for any shutdown in the coming days.



A Handy Guide to Federal Government Shutdown:


Federal Contractors—Non-FY 2011 Funds. 

Contracts paid for with other than fiscal year 2011 money are still in operation, but invoices might be paid late because of a shutdown.  The government might owe a little more if the payment is late.  A contractor would generally be required to continue working and to bill the government according to the terms of the contract.


Federal Contractors—FY 2011 Funds. 

A contractor may have to shift employees to avoid working on a project that is funded with fiscal year 2011 money.  Work that has already been funded or receives money through revolving funds can continue.  Although Congress has retroactively paid furloughed federal employees in the past, no such obligation exists for contract employees and Congress has never seen fit to do so.  Also, the government is banned from accepting voluntary work, so contractor employees cannot be permitted to work if the funds do not exist.


Products Versus Services. 

Companies selling products will face changes in when and where they would make their deliveries, but the government may pay a number of different ways, from quarterly to jobs done per day.  Contractors should talk with their Contracting Officers about what will happen and share their concerns.  However, Contracting Officers may not have any answers because the decision is being made by someone far above their level.


Fixed-Price Contracts 

Most fixed-price contracts are funded at the time the contract is formed. Agencies also can continue to contract work for (1) Activities they have statutory authority for, such as the Defense Department's authority to contract for needed food, fuel, and medical supplies, (2) Specific duties imposed on an agency, such as paying Social Security benefits, which are not funded through annual appropriations, and (3) Emergencies involving the safety of human life or the protection of property.  However, even under these conditions, Contracting Officers could temporarily stop contract work if their agencies do not have federal employees to open office buildings or monitor contract performance.


Cost Type Contracts 

Most cost-reimbursable contracts receive funding only as parts of the contract are completed and many of them include a "limitation of funds" clause, which acts as a de facto stop order in the event funds are not available.  Expenses incurred on those contracts after a shutdown may not be immediately, or even ultimately, funded by the government.