As yet another government shutdown looms on the horizon, contractors must again prepare for the ramifications of a shutdown. At present, the President does not look likely to sign a budget bill unless Congress includes significant appropriations for a border wall which also does not appear likely. If no compromise is reached, parts of the government could begin to shut down as early as next week (December 21). While industry has no control over Washington politics, the effects will still be felt nationwide and will probably impact your business as a federal contractor. While not an exhaustive list, a government shutdown can halt your incremental funding stream, delay other payments, preclude you from executing new contracts or modifying existing ones, impose logistical challenges such as closed government facilities or furloughed government employees who are your counterparts on a program, increase your costs (both direct and indirect), and delay or defer the exercise of contract options. So, what can you do to weather the storm? Here are some suggestions for mitigating your risks during a potential shutdown.
- Take a look at your contracts. While understanding your contract is always a good idea, knowing the details is especially important in the face of a government shutdown. As an initial mater, you need to know the type of contract you have. This is important because a shutdown is more likely to impact an incrementally funded contract as incremental funding may be precluded, lapse or be significantly delayed during a shutdown. However, even if your contract is fully funded, a shutdown could still result in furloughed government employees, closed facilities, or other unanticipated costs of performance. And, if your facility is closed or your government counterparts are furloughed or have reduced hours during a shutdown, you will need to plan how these obstacles will impact your ability to perform and your costs of performance. You should also review your statements of work to see how a shutdown may affect your obligations. In this regard, a contract relating to national security or emergency services is more likely to remain funded during a shutdown than a contract for less urgent needs.
- Talk to your contracting officer. You should be in touch with your contracting officer now. Having a dialogue on a potential shutdown will be critical so you can seek guidance on whether facilities will stay open, whether government employees will be available or furloughed, whether you should continue performing, and if so, whether full or reduced performance is required. If contracting tells you to stop work, you should request a written stop work order to document the fact that you are ceasing performance at the government’s express direction. Along these lines, you should also advise the contracting officer in writing of any anticipated cost increases due to the shutdown, such as any direct costs that you will continue to incur, any additional costs that you believe you will incur as a result of any closed facilities, furloughed employees or increased material or other job costs, and any indirect costs such as home office overhead that will be unabsorbed due to your inability to perform and bill for work that would have been performed during the shutdown period. Such documentation is critical if you think you may request that the government reimburse you at a later date.
- Talk to your people. You should also talk to your own employees and subcontractors about the shutdown and whether any of them may need to be furloughed or work reduced hours because of the shutdown. With the help of your HR department, talk to your employees about what the shutdown means for the company, for them, and what the company plans to do during the shutdown. If employees can be reassigned to other projects, then consider doing so. Or, if employees have accrued paid leave, this may be the time to consider having affected employees take that time if state law and any applicable employment agreements permit such action. These steps will help mitigate the risk to your employees and team during a shutdown.
- Paper the file. As with any delay, a government shutdown will likely result in increased and unexpected costs. These costs commonly include start up and wind down costs, direct costs for furloughed employees, unabsorbed home office overhead and other indirect costs, and additional job costs. You will need to document these costs in order to potentially recover them from the government at a future date. You should also document any steps that you take to mitigate costs during the shutdown period. These steps will show that you acted reasonably, protected the government’s interests, and that the government was aware of the shutdown’s impact on your contract—all things which are useful in any future request for reimbursement from the government.
- Hunker down. On any non-exempt contracts, you should be prepared to wait awhile for regular payments to resume once the shutdown is over. Accordingly, you may want to collect as much as you can from customers before the shutdown goes into effect and let your suppliers and creditors know about your situation. Also, you should, of course, review your options for extending cash flow such as looking at your reserves and available lines of credit and the like to help you ride out the shutdown until operations can get back to normal. But in the meantime, it’s business as usual unless you are told otherwise. That is, unless you are told in writing to stop performing, change your performance, or to do something different, stick to your current obligations. And, this advice holds true for any other actions you face, such as the deadline to submit a bid, file a protest or claim, appeal a contracting officer’s final decision, or respond to a litigation deadline. In sum, unless you are told differently, you should assume that any existing obligations and deadlines for everything that you do are still the same.