The Federal Goverment is Shut Down . . . Now What?


A seemingly simple proposition often misunderstood is that during a Government shutdown contracts remain in force; not all do. Therefore, the first and most important thing to do in determining shutdown implications is to review your contract. The second most important thing to do is to follow all applicable administrative requirements, including respecting required notices. Communication, both internally and externally, is critical.

Some additional specific considerations for Government contractors as the current shutdown continues include the following:

Pre-FY 2013 Funded Contracts: These contracts should not be shut down; however, it would be good to confirm with the Contracting Officer that performance is to continue. Payments may be delayed, and this should result in interest payments under the Prompt Payment Act. You are generally obligated to perform work even if payment is delayed; however, if payment delay is excessive and you are unable to perform because of that you should consider making an administrative claim, providing notice to the Contracting Officer. Please note that even with this, though, reducing or stopping work may not be contractually allowed. Keep a cash flow record to justify any reduction or stoppage.

FY 2013 Funded Contracts: For contracts where work has already been funded, or if revolving funds are available, work may continue. If the Contracting Officer provides a shutdown notice though, promptly stop work and track any cost impact. Continued work without approval will likely be considered volunteer work and not be paid for. As with other adverse administrative actions, notice and otherwise following adjustment and claim processes are required, including notices. Communication with the Contracting Officer is critical. But communication with lower tiers is also critical, including notices to them to stop work or deliveries. Additionally, consider any security requirements that may apply / be affected.

Fixed Priced Contracts: These contracts are generally funded at the time of award, and can include fixed price task orders; however, beware of unfunded change orders and task orders. Performing them without approval / funding will also likely be considered volunteer work and not paid for. As with the above, both external and internal communication is critical.

Cost Type Contracts: Typically these contracts are funded only in part as the work progresses, and are subject to limitation on funds clauses. Do not continue to work if it is not funded (see above), provide notice to the Contracting Officer (see above), and communicate both externally and internally (see above and below). Similar rules apply to Time and Material (T&M) contracts.

Supply Contracts: Products may be subject to changed delivery and payment terms. Make sure to advise your vendors. Communication with them and the Government is critical.

Service Contracts: Make sure you know where your employees are located. They might find that they do not have access to Government facilities during the shutdown. Unless advised not to report to work, employers may be liable to pay the employee with no reimbursement from the Government. Also, if an employee is on official travel, employers may need to order them to return or stay in place for a short time until further information is available. Employees on leave, vacation or sick leave should probably stay on that status if they were assigned to a shutdown contract. However, if the employees are covered by a Collective Bargaining Agreement (CBA), the CBA might govern how employers must treat their employees. Employers may be required to bargain or discuss shutdown changes with the union under federal labor law or the terms of the CBA.

Employees: Attempt to mitigate costs by work reassignments. Consider vacation or leave as that may not be classified as voluntary work, and may be compensable after the shutdown ends. Some workers may need to be on “stand by” to perform emergency services, such as maintenance of an IT system. If employers need to furlough employees they should first verify applicable laws and regulations of the jurisdiction in which the work is performed; especially California and New York. Under the federal Fair Labor Standards Act (FLSA), if non-exempt employees perform any work during the shutdown (whether from their homes, cars, or any worksite) then employers are required to pay those non-exempt employees at their regular rates, for all time they actually work, even though the Government may never reimburse the company. For salaried, exempt employees, if those employees work any part of any week (e.g. a few hours on the first day of the Government shutdown), then employers are required to pay them their entire, fixed salary for that entire week. Depending on state or local law, the terms of any applicable CBA, and/or company policy or practice, employers may be able to require employees to use their available, paid vacation or other paid leave for full or partial days of the Government shutdown.

Federal Employees: Determine if you need a federal employee to approve the work, payment, accept deliveries, provide access, information, or other reasons. If the contract is not shut down try to plan around such problems and notify the Government of any impacts.

Government Agencies: Certain Government agencies with significant Government contract responsibility, such the Small Business Administration (SBA), may be completely shut down. This will delay approval of 8(a) applications, mentor-protégé applications, loans, size determinations, and other issues.

Shutdown issues are many, varied, and complex. Knowing your contract and then communicating both externally with the Government, lower tiers, etc. and also with your employees are critical first steps.

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