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28 September 20237 minute read

Lapse in appropriations: Practical tips for government contractors ahead of a potential government shutdown

The vast majority of the federal government is funded by 12 annual appropriations bills. Unfortunately, while the current fiscal year federal funding expires on September 30, 2023, as of today, Congress has not enacted any appropriations for fiscal year 2024. Without a continuing resolution or annual appropriations enacted, the federal government would experience a lapse in appropriations, commonly referred to as a “government shutdown.”

While negotiations seem to be ongoing with efforts from both chambers to continue funding, the odds of a government shutdown remain high. Earlier this week, Senate Leaders introduced a bipartisan continuing resolution that would extend government funding through November 17, 2023.

Also this week, the House of Representatives attempted to advance four separate annual spending measures that included funding for the Department of Defense, Department of Homeland Security, Department of State and Foreign Operations, and Agriculture, Rural Development and Food and Drug Administration. However, a continued divide and seeming inability for congressional leads to align on overall spending levels, including even within parties, are increasing the likelihood that Congress may not reach an agreement and avert a shutdown by Saturday evening.

How can government contractors prepare?

There are practical steps that government contractors can take so that they are well positioned to respond to the increasingly likely shutdown. Suggestions include the following:

  1. Review your contracts. Take inventory of your contracts and ensure that the company has key data points of its federal contracts readily accessible to decision-makers. This includes information such as contract number, agency, period of performance, and contract value. In addition, it is important to include contract details that may impact performance and payment during a shutdown, such as contract type, the extent to which the contract is funded with previous years’ dollars, and the type of work involved, including whether such work may be deemed “essential” work that must continue during a shutdown. The expiration of an appropriation does not automatically require the termination of contracts, or the issuance of a stop work order, funded by that appropriation – a case-by-case assessment is important to understand your specific circumstances.

  2. Know the employees performing on federal contracts, how to reach them, and where they are located. In the event of a shutdown, it is helpful to keep a centralized record of employees that work on federal contracts, including the contracts to which they are assigned and their respective roles on those contracts. This will help the company to expeditiously identify the employees affected by government actions (eg, which employees the government deems essential, which are subject to agency-specific guidance). It is similarly important to maintain contact information for the potentially affected employees, such as personal/company email addresses and personal phone numbers, to facilitate outreach. Moreover, a shutdown could impact employees performing overseas or outside of their home area. For such personnel, consider whether it is best for them to return home or to remain, likely at company expense, in their offsite location.

  3. Understand what work requires the presence of government officials and where your employees are performing. While government contractors may continue to perform in the event of a shutdown, most federal employees will not be working. Thus, in preparation for a shutdown, it is important consider what activities require government personnel (ie, access to facilities; access to classified data; contract administration, including payment processing; use of government IT systems) and whether there are workarounds that may allow for continued performance. Where contracts require oversight, engagement, or inspection by federal employees who have been furloughed, contractors could receive a stop work order, or even a termination notice.

  4. Consider alternative tasks for employees. In the event of a shutdown, contractors who perform on government installations may not be able to perform. It is prudent for companies to consider how they will handle affected employees. For example, will the company continue to pay the employee for idle time, force use of paid leave, assign employees non-affected tasks (including overhead projects), or furlough/lay off employees? Such decisions cannot be made in a silo; they must take into account the requirements of any applicable labor and employment laws, employment contracts, and collective bargaining agreements.

  5. Customer coordination is key. With a shutdown looming, it is prudent to open a line of communication with your government customer. Ensure that the customer knows the company point of contact for shutdown issues. Similarly, confirm that the company has the proper contact information for the contracting officer. Continued collaboration with the government before, during (to the extent possible), and after will help you navigate a shutdown as seamlessly as possible. It is also prudent to communicate with any higher-tiered contractors, subcontractors, and vendors about the impending shutdown, and to remain coordinated on plans for performance.

  6. Document, document, document. Without a government directive, “consequential damages” are generally not recoverable. However, there are many costs that may be recoverable, such as material/vendor costs and unabsorbed overhead. Once the shutdown ends, documentation will be key to supporting requests for cost recovery and negotiation of a contract modification that fairly compensates the contractor for additional costs. Thus, it is prudent to retain any communications, as well as track the costs associated with the shutdown and any schedule impact that the shutdown has on performance.

  7. Stay informed. Most agencies have already issued guidance for what will happen in the event of a shutdown. The White House’s Office of Management and Budget has compiled a list of agency guidance and links to the most recent versions of that guidance, available here. In general, current guidance states that contractors should continue performing contracts that were awarded and funded prior to the shutdown, but prohibits agencies from awarding new contracts or exercising options (except under certain exceptions). Contractors should review previously issued guidance that is relevant to their contracts and continue to closely monitor any new guidance that is issued. Companies that comply with government guidance will, in general, be better positioned to request payment for costs associated with the shutdown.

  8. Consider opportunities. While a shutdown generally means less work for contractors, in some instances, government agencies may look to contractors to fill critical services that federal employees cannot perform during a shutdown or to help the government get back on track after the shutdown. If your company provides services that can assist in that regard, be proactive in engaging with your customers and monitoring solicitations for new work.

  9. Keep performing. While companies may look for reasons to stop performing to the extent they are not getting paid during a shutdown, it is critical to consider contract obligations before ceasing performance. For example, FAR 52.233-1 requires that “[t]he Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract.” If the company may need an additional line of credit to continue performance, providing advance notice to your banking institution may help facilitate that process.

DLA Piper’s federal lobbying team and Government Contracts practices work closely together on issues that impact federal contractors. We are closely monitoring developments in this area. For more information, please contact any of the authors.