In the Know

What Government Contractors Need to Know About the 2018 Government Shutdown
January 22, 2018
Alerts
Arnall Golden Gregory LLP

At midnight on January 20, 2018, the Government shut down for the 19th time since Congress introduced the Congressional Budget and Impoundment Control Act, which established the federal budget process in 1976. Six of the last 18 shutdowns lasted for more than 10 days. The most recent shutdown in 2013 lasted for 16 days. Should the 2018 Government shutdown last for more than a few days, government contractors need to know the following:

  • Why Did This Happen? According to the U.S. Constitution, only Congress can authorize appropriated funds. The Government shutdown occurred because a divided Congress failed to reach a deal to fund the Government by January 20, 2018.
  • Can I Call Our Contracting Officer? Yes, but you likely won’t reach him or her. In 2013, 40% of approximately 2 million career civil servants were sent home and contract personnel, are not considered “excepted personnel” so expect that most contract personnel will be sent home. Contract personnel may be nearly impossible to reach because furloughed employees are prohibited from using government electronics such as cell phones and laptop computers, etc.
  • Will the Government Pay for a Contractor’s Furloughed Employees? While there is no definite answer to this, the best answer is no. Although Congress decided in 2013 to make furloughed federal employees whole, it did not pay contractors for furloughed personnel – and, most importantly, never has. Therefore, if a contractor can assign its employees to work on research and development or commercial projects, attend company training or permit employees to take vacation days, this is preferable to having to furlough employees. If, however, the company is not in a position to avoid a furlough, then it must provide its furloughed employees with as much “advance notice” as possible in accordance with the Worker Adjustment and Retraining Notification Act of 1988.
  • Will Every Federal Agency Shut Down Entirely? Most agencies (except a small agency with a single mission) don’t shut down entirely. Every agency has its own separate detailed shutdown plan – this is not at all a one-size-fits-all shutdown. Work is halted on a program-by-program and/or contract-by-contract basis, depending on whether there are obligated funds available to support a program and/or contract.
  • How Do I Know Whether to Continue Working? Whether a contractor can proceed with its work will depend entirely on the nature and type of its contract, the source of its funding, who is in charge of the contract and whether it is possible to access a particular government facility. A contractor should continue to perform until it receives a Stop-Work Order from its Contracting Officer (which can be issued as a partial Stop-Work Order or a Complete Stop-Work Order).
  • How is the “Nature” of a Contract Relevant? Here are a few examples:
    • A contractor may be able to proceed with its work where a statute expressly obligates funds for the safety of human life or the protection of property. For example, if the contractor is assisting the Federal Emergency Management Agency with Hurricane emergency operations during a hurricane, it can continue contract performance.
    • A contractor may be able to proceed with its work where it is necessary to exercise the Constitutional powers of the White House. For example, where the contractor is performing work to meet national security obligations of the country, it may proceed with its work since the President must still be able to protect the country, even during a Government shutdown.
    • A contractor may be able to proceed with its work where a contractor is providing Information Technology (“IT”) services which are linked to mission critical operations focused on protecting life and property. Providing IT services is a particularly murky area during a Government shutdown since nearly all agencies utilize IT in some manner for their mission critical operations. Therefore, a contractor must obtain individual guidance from each agency with regard to continuing performance.
  • How is the “Type” of a Contract Relevant? Here are a few examples:
    • If a contractor received a non-severable contract for services for a single undertaking related to an end product that was funded before the Government shutdown, the contractor can continue performance on that contract.
    • Where the contract is severable (performing duties on a monthly basis and subject to periodic funding), the contractor cannot continue performance.
    • In a cost-type contract, the limitation of funds clause may limit a contractor’s performance -- so reviewing the limitation of funds clause in a cost-type contract is now critical.
    • In an Indefinite Delivery, Indefinite Quantity (“IDIQ”) contract, funding comes from the task order as opposed to the IDIQ contract itself (except for the minimum revenue guarantee) and, therefore, a contractor cannot continue performance.
  • How is the “Source of the Funding” of a Contract Relevant? Here are a few examples:
    • A contractor may be able to proceed with its work where funding is authorized by “necessary implication.” For example, social security has a permanent funding authorization and, therefore, if contractor employs IT professionals who carry out the function of making sure that social security checks are sent out electronically, then those employees can proceed to work. But, those employees must be sent home each day just as soon as they have finished performance of the necessary functions.
    • A contractor may also be able to proceed with its work where, for example, the funding for the contract comes from a multi-year obligation which doesn’t require funds to come from this Appropriations Bill or from a Continuing Resolution. But, a multi-year contract may still not have adequate funding, so it’s important to know which year the contractor is funded on.
  • Why Is “Who Is In Charge” of the Contract Relevant?
    • Who is in charge of a contract becomes relevant during a Government shutdown because it may be difficult, if not impossible, to find contract personnel to approve payments, accept deliveries of goods and services and provide access to offices and/or classified information. If the contract officer in charge of a contractor’s contract is permitted to work, he or she can play an important role in helping a contractor to continue performance.
  • What Happens if We Receive a Stop-Work Order? Once a Stop-Work Order has been issued (whether partial or complete), a contractor must immediately communicate that message to all of its employees and must also order its subcontractors and vendors to stop working too. The Anti-Deficiency Act prohibits federal agencies from accepting voluntary services from contractors or any other donees. The Government can’t commit to pay or spend money without appropriations. After receipt of a Stop-Work Order, a government contractor should identify any costs incurred from the Stop-Work order, attempt to mitigate those costs and, most importantly, document those costs since a government contractor is entitled to seek reimbursement for such costs. A Stop Work Order cannot last longer than 90 days. Therefore, after 90 days, a government contractor can resume its work unless the Government terminates its contract for convenience. Contractors are entitled to reimbursement for costs incurred for starting back up too – so any such costs should also be adequately documented.

To review the entire document and formatting for this alert (e.g., footnotes), please access the original below:

Downloads: