Federal government shutdown effects on federal government contractors

At midnight of Sept. 30, due to a lapse in appropriations, the federal government shut down, which will almost invariably affect most federal government contracts and subcontracts. While the expiration of funding does not automatically require stopping work or terminating contracts, if new money is needed and the work does not support “excepted” (essential) activities, contractors and subcontractors should be aware and make appropriate plans. Government contractors are advised to review the terms and conditions of each contract and understand their contract funding and the type of activity that each contract supports. Here are a few links to current contingency plans that explain the rules for the Department of Defense, the Internal Revenue Service, and the Department of Veteran Affairs. Additionally, here is a link to the Congress.gov Key Resources Regarding Past Government Shutdowns, which may be helpful in finding other current contingency plans at other federal agencies.

Considerations

Existing contracts: Contractors working under contracts awarded before appropriations expired may continue their work up to the amount already obligated, provided they do not need:

• Access to government facilities
• Active government personnel oversight
• Government resources that would create new financial obligations

New contract actions: Unless and until Congress provides new appropriations, new contracts, renewals, extensions, task orders, option exercises, and additional funding increments are prohibited unless supporting “excepted activities.” This restriction is important and will remain in effect because:

• Additional funding is required for new contract actions to begin, and
• In contracts where government oversight is required, furloughed employees cannot provide the required oversight.

The emergency exception

For contracts where national security or human life or limb are the focus, the Agency or Department concerned may execute new contracts or task orders for “excepted” activities even without available appropriations.

As discussed above, existing contracts can run on already-obligated funds with minimal government involvement, but new spending requires either new appropriations or qualification as an emergency excepted activity, and every contractor is required to understand the effect of these conditions on their contracts and subcontracts. Future requests for equitable adjustment or reimbursement will be conditioned on the right conditions being present.

We encourage you to ensure your company is prepared for and understands what to do during the shutdown. Our team is here to assist you in understanding the rules and which appropriation type applies to your contract. Please do not hesitate to reach out to our team if you have any questions or require assistance.

This publication is intended for general informational purposes only and does not constitute legal advice or a solicitation to provide legal services. The information in this publication is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional legal counsel. The views and opinions expressed herein represent those of the individual author only and are not necessarily the views of Clark Hill PLC. Although we attempt to ensure that postings on our website are complete, accurate, and up to date, we assume no responsibility for their completeness, accuracy, or timeliness.