How Should Contractors Prepare for a Possible Government Shutdown?
As the end of the fiscal year (FY) rapidly approaches in four days, and with no appropriations for FY 2024, government contractors should be planning for a shutdown that will interfere with services, payments and awards that were anticipated for future revenue.
Shutdowns are not only inconvenient but also require difficult decisions to be made.
What Should Government Contractors Do Now?
In light of a possible shutdown, contractors should take the following actions:
- Communicate with your Contracting Officer early and often regarding the pending shutdown.
- Follow Contracting Officer instructions if provided. These can be provided verbally, by email or by letter. If provided verbally, memorialize the instructions in a written Memo to File or e-mail to the Contracting Officer acknowledging the instructions.
- Track and record all contracts that will be affected, associated costs and costs required to restart after the shutdown ends.
- Ensure all materials or resources that can be received are received and tasks that can be completed before the shutdown are completed.
- Pay all bills with subcontractors or clients prior to the shutdown, if possible.
- Have a plan for what to do with employees. Will you furlough those employees effected, re-purpose employees if possible, have them attend training or reduce hours?
Be prepared for a lack of communication during the shutdown. You may also experience payment issues, or your options or extensions may not be executed timely. You should anticipate that ongoing solicitations will not be awarded during this period and will be delayed.
If you are concerned about an ongoing claim, the Government Accountability Office (GAO) and Court of Federal Claims (COFC) are open during the shutdown. However, there are some constraints:
- Protests must be filed in a timely manner even if there was no Contracting Officer available who could respond to the protest.
- Similarly, it is doubtful that the time for filing claims will be extended during the shutdown. Thus, the six-year filing period likely remains in effect.
- If a claim was filed prior to the shutdown and a decision on that claim became due during the shutdown, the contractor can continue to wait for the shutdown to end and allow the Contracting Officer to render a decision.
After The Shutdown, What’s Next?
When the government re-opens, there will be delays associated with the shutdown. Additionally, the Contracting Officer must send hundreds of modifications or letters out to get contractors restarted, mobilized and back to work. There will also be disputes, Requests for Equitable Adjustment (REAs) and claims associated with the shutdown that will have to be resolved.
Contractors and vendors should review their contracts to understand their rights and obligations, depending on several factors such as:
- Contract type
- Contract clauses
- Type of services provided
There will be justifiable delays that are excusable and out of the control of the contractor. They come in two forms: non-compensable and compensable. Due to a shutdown, a contractor should be focused on compensable delays. These are delays that are unforeseeable and beyond the contractor’s control, but for which the contractor is entitled to a time extension and additional compensation. There are also the costs associated with running the business regardless of a delay or shutdown. This is known as unabsorbed overhead, in which the contractor is due in addition to the material and labor costs.
I Have Delay Costs. Now What?
There are several approaches to utilize when presenting impacts to your contract:
- Changes clause: Request a modification for excusable delays and compensable items.
- REAs: This request is for relief under the terms of the contract that may provide consideration for changes outside the control or scope of the contract.
- Lastly, if there is a dispute regarding the delays or costs proposed, there is the option to submit a claim. However, we recommend that contractors attempt the two previous options before submitting a claim. This is due to the impact it may have on the contractual relationship, costs to the contractor associated with claims and time associated with resolving a claim.
Should you find yourself needing answers specific to your situation or help resolving costs associated with a shutdown.
