March 4th - What's At Stake for Contractors

The possibility of a Government shutdown on Friday (March 4th) has significant ramifications for Government contractors. If the shutdown happens, the Government will scale back to performing only "essential" operations (each Federal Agency defines its own essential operations). The last time something like this happened was in 1996 (Clinton Administration). Non-essential services that time included national parks, museums, toxic cleanup, passport applications, and many other activities. It also included most Government procurement, contract administration and audit activity. During those 21 days, contracting essentially halted as thousands of government employees were put on furlough. Government contractors were affected once they expended the funds authorized under their contracts or even earlier in the case of those working on Government installations.

If you have active contracts and have not already done so, you need to engage your contracting officer(s) right away to determine how your contracts will be affected by a Government shutdown. Contracts most likely to be affected are cost reimbursable and T&M contracts. These have limitation of funds clauses which cannot be breached. And, unless your contract is considered essential (e.g. ammo for Afghanistan) it is not likely that additional funds will be forthcoming during a shutdown. Without funding, contractors will have to find other ways of meeting payroll and other fixed expenses. Contractors need to think about mitigating costs. Forcing employees to take leave or catch up on mandatory training are a couple of ideas used previously.

If a shutdown occurs, contractors should not expect to be compensated. Most were not the last time a shutdown occurred and shouldn't expect it this time either.