It Appears The Government Shutdown Has No Apparent End In Sight

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We recently posted a story in this blog about the temporary closing of E-Verify due to a partial lapse in federal funding. We brought it to your attention thinking it would be a temporary inconvenience and to direct you toward agency resources.

Since then it appears the government shutdown, which primarily involves funding for a border wall, has no apparent end in sight. While it only affects certain agencies — Departments of Agriculture, Housing and Urban Development, State, Homeland Security, Interior, Justice, Treasury, Transportation, Commerce, and others — the repercussions will be felt more widespread the longer the lapse continues.

While the news focuses on the impact on federal employees as well as federal services such as Social Security checks, airport screening, national parks, and museums, and the ability of the IRS to conduct business, the impact on federal contractors is not insignificant. Affected contractors are increasingly asking questions so we wanted to take this opportunity to provide a little information regarding its impact on federal contracting and to direct you toward contracting information that may be helpful.

A very helpful resource to better understand federal contracting legal issues when there is a lapse in funding is the Congressional Research Service report titled, Government Procurement in Times of Fiscal Uncertainty, dated April 6, 2012 (R42469). A copy of this report can be viewed at https://fas.org/sgp/crs/misc/R42469.pdf  Below is a summary of key issues:

• Both contractors and the agency personnel that administer contracts are paid with appropriated funds. Generally, if there is a lapse in appropriated funds, this would cause a lapse in the ability to award and manage contracts as well.
• The federal government generally has broad discretion to cancel a solicitation at any time during a procurement before award.
• The federal government also has broad discretion regarding exercising an option. Contractors are not entitled to any recovery of lost profits if the government chooses not to exercise an option.
• Funding lapses generally prevent the government from entering new contracts or allocating new funding to cost-reimbursement contracts.
• The government is permitted to make reductions in scope, alter the period of performance, or terminate contracts.

Please keep in mind that each circumstance is different, so there is no single answer to many of the questions we receive. It is important to note that past government shutdown experience has shown that some agencies are willing to work with government contractors and consider equitable adjustments, or other tools such as overtime, to offset lost work. Contractors should be documenting lost hours, and the impact on deliverables should this option become available.

Additionally, some unintended contract events occurred as a result of the shutdown including the previously mentioned shutdown of E-Verify, as well as limited functionality of the Civilian Board of Contract Appeals.

This is not a legal opinion as to what contractors should do during a shutdown; rather it’s an effort to direct you toward some useful information.