There are no dumb questions, only smart contractors. This is especially true when it comes to questions about a potential government shutdown. The more questions you ask, and the sooner you ask them, the better. Below are some frequently asked questions, which we tried to answer at our recent event exploring the implications of a shutdown on government contractors.
Disclaimer: These answers are guidance only and not offered as legal advice.
1: What happens in a government shutdown?
A government shutdown means work not otherwise deemed “essential” or “excepted” stops. Excepted or essential work is work that must be done to protect the immediate safety of life or property, thus work is halted on a program-by-program basis, with the agencies deciding what is essential under the guidance of the Office of Management and Budget. Because agencies implement the plans, they’re highly decentralized and affected work will be different from agency to agency. Contracting officers could provide stop work orders to those contractors whose work must stop.
Informally, there are two kinds of shutdown: hard and soft. A soft shutdown generally occurs over a weekend while a funding resolution appears to be near agreement and Congress and the president finalize minor details with the expectation that the bill will be signed in the near term. The soft shutdown allows federal employees to come to work, but no substantial government work can occur. As a result, the government avoids furloughs and closure of facilities that are the hallmarks of a hard shutdown. During a hard shutdown the only work that can be done is essential or excepted work, defined above.
2: Other than essential work, what work can continue in a shutdown?
Work can continue as long as an agency can obligate funds. Funds can still be obligated during the shutdown if:
- The money is not limited to one year;
- The agency is authorized by statute that expressly permits obligations;
- The money is used to cover necessary, specific duties;
- The spending is used to terminate operations in an orderly way.
Of course, generally speaking, work paid for in advance of a shutdown can continue provided employees have access to the tools and facilities required to do the work. More on facility access in another answer.
3: What happens if my program is shut down?
If your work is not essential or otherwise funded, then the expiration of appropriations likely means your work will stop. Companies required to stop work should get a notice from the contracting officer handling the affected projects. The document is called a “Notice of Scope of Work Affected, Timetable and Permissible Activities.” In such cases, employees may not continue to work on that project and any substantial work on that project will not be reimbursed. You may be able to recover costs incurred to stop and restart work at the start and end of a shutdown, but you must carefully document and account for those costs or they may not be recovered.
In the “hard” shutdowns of 1995, furloughed contractor employees did not receive back pay, so it should not be expected this time. Still, employee furloughs should be a last resort. Try to find other, temporary tasks for affected employees to perform that can allow them to continue to collect a pay check. Such tasks include temporary reassignments to other billable (likely non-government) projects, employee training or paid leave. Due to the uncertain duration of a shutdown, however, furloughs may be an inevitable, undesirable, event.
4. What happens if my employees are overseas or on travel and their program is not exempt from the shutdown?
While many tasks performed overseas to support the military, such as providing food to troops in Afghanistan, will be exempt from the shutdown, overseas status does not equal a shutdown exemption. But neither should you recall your employees overseas who are not performing critical work and employees on travel who are prohibited from working. It may not be cost effective or logical to do so, particularly if the length of the shutdown is uncertain. Further, some agencies that do a lot of overseas work, such as the U.S. Agency for International Development, are funded with multi-year money, which may mean work can continue. Don’t jump to conclusions when it comes to overseas work. Ask your contracting officer.
5. What happens if an employee is permitted to work during the shutdown, but can’t access the building they work in?
Telework and working in your facilities are options for work that doesn’t require day-to-day, hands-on access to government facilities or management by the government. If you need a federal employee to accept delivery of an item, approve work, access information or equipment, or carry out some other aspect of a task so that work can continue, you may have to stop work on the project and find another task for the employee.
6. Do I still have to pay my subcontractors if ordered to stop work in a shutdown?
It depends on how you wrote your contracts with them. The government’s stop work order applies to the prime contractor, but if you failed to flow down to subcontractors any limitations of funds clauses in your government contracts, then subcontractors may have a payment claim. Read your contracts carefully and consult counsel.
7: Can I volunteer to keep working in the hopes of getting reimbursed after the shutdown?
No, for two reasons. The Anti-Deficiency Act (31 U.S.C. §1342) prohibits agencies from accepting volunteer services to replace federal employees. It also prohibits buying any goods and services when they don’t have cash on hand to do so.
8. What types of costs can I recover after a shutdown?
Reasonable costs incurred when shutting down covered activities and then restarting those activities when directed by the contracting officer should be recoverable by filing a claim or a request for “equitable adjustment” of the contract price. But be sure to document those costs to demonstrate how they are specifically tied to the shutdown. Even then, there is no guarantee of recovery, but normal contract rules provide for such circumstances. Similarly, if a contractor had to pay more for materials because the shutdown delayed the project, those increased costs may be recoverable. However, if the price goes down, the reductions may also have to be passed to the government.
Depending on the type of contract you have with your subcontractor or a consultant to assist with a project, expenses of continuing that relationship, even if at a higher cost, would likely be recoverable. In addition, if the delays of a shutdown cause you to have to pay out additional danger pay to employees in dangerous locations, those costs may be recoverable. In all cases, documenting the costs incurred and demonstrating how those costs are specifically tied to the shutdown is always a key element of recovery.
Outside of these circumstances there is generally no recovery of back pay or “consequential damages,” unless Congress agrees to make such payments.
