Here we are again. With federal funding for fiscal year 2025 lapsed, all government contractors now face potential stop work orders and financial disruptions. Below are key considerations and steps to mitigate potential risk and maximize cost recovery:
1. Document Everything
Thorough documentation is essential. Under most federal contracts and subcontracts, when the government causes a delay, contractors may be entitled to time extensions and, in some cases, cost recovery, but only if all impacts and associated costs are properly documented and justified. Keep on top of your records and maintain details of:
- Project delays, stop-work orders and/or interruptions;
- Additional costs incurred as a result of government-caused delay and disruption; and
- Efforts to mitigate damages and minimize costs.
2. Review Funding Status of All Contracts
Make sure you are aware and tracking whether your contracts are fully funded or incrementally funded. Review your contracts to determine whether the Limitation of Cost/Funds clause is included and if so, do not incur costs above your contract’s current limits since the Government is not obligated to reimburse for excess costs incurred above funding limits! NOTE: Fully funded work can continue as long as any necessary government resources will still be available. Incrementally funded contracts may run out of funds during the shutdown, and no new funds can be obligated until appropriations are restored.
3. Coordinate with Contracting Officers
If not already done, communicate with your contracting officers in writing – even if they are not there to hear you – to clarify:
- Which work may continue;
- Which work cannot continue;
- Any required contingency plans; and
- Whether access to government facilities, equipment, and/or personnel will be restricted.
4. Assess Subcontracts
Prime contractors should review their subcontracts to ensure they have the right to direct subcontractors to stop work if the principal contract is suspended. Without this right, subcontractors may seek to continue working, and billing, even when the prime cannot proceed. Subcontractors – do the same thing – make sure you understand your rights.
5. Follow DOD and Agency Guidance
Many agencies, including the Department of Defense, have issued contingency plans. Generally, contractors may continue work only up to pre-shutdown funding limits and only if the work does not require access to government facilities, active oversight, or actions that create new obligations. New contracts generally cannot be executed unless tied to an excepted activity – so be mindful of your obligations and if you have questions, confirm the government’s approach in writing with your CO and/or Prime.
NOTE: OMB has removed its listing of all agency contingency plans from the White House’s website and point contractors to individual agency websites to view shutdown contingency plans.
6. Stay Vigilant Regarding Protests and Awards
The Government Accountability Office’s Electronic Protest Docketing System (EPDS) is currently shut down. This prevents contractors from filing protests that would typically trigger an automatic stay of award under the Competition in Contracting Act. It is unclear whether agencies will voluntarily stay awards or performance during this period, so contractors should closely monitor any ongoing procurements.
7. Small Business Impacts
Small businesses are likely to experience disproportionate financial strain due to interrupted cash flow, mounting labor costs, and equipment rentals. Consider proactively engaging with lenders, suppliers, or partners to manage liquidity during the shutdown.
8. Expect Slowdowns
Procurement activity had already slowed due to fiscal uncertainty and workforce reductions. The shutdown will only add fuel to the fire and will exacerbate these delays across contract solicitations, awards, and modifications.
Bottom Line:
Stay proactive. Document all impacts, communicate with contracting officers, review contract funding and subcontracts, and take steps to mitigate damages to better position your company to seek relief or recover costs once the government reopens.
These already muddied waters can get choppy quickly. Please reach out if you need assistance reviewing contract terms, preparing documentation, and/or developing a mitigation strategy.