September 22, 2015 - Defense

Mitigating the Impact of a Government Shut Down

defense-2As of September 20, 2015, none of the 12 appropriations bills required to keep the federal government funded during fiscal year 2016 have been passed.  Congressional gridlock over what should be included in the budget is such that many political analysts are reporting that not all of the bills will pass by October 1, 2015, and that there is a chance continuing resolutions will not be passed for all agencies.  If an agency’s appropriation bill or a stopgap continuing resolution covering the agency is not passed by then, that agency will have a funding gap, and under the Antideficiency Act, must shut down all but a narrowly defined set of essential services and operations.

In the event of a government shutdown, unless executive orders, agency guidance, or multiyear funding authority provides otherwise, the following are among the events that will occur effective October 1:

  • nonessential federal employees not in an exempted status will be placed on leave without pay;
  • new program awards and starts will be suspended;
  • stop work orders will be issued for contracts for nonessential services and operations (e.g., training, recruiting, nonmedical supports, and major maintenance and repair of weapons); and
  • travel will be restricted to only the minimum essential activities.

Even if a continuing resolution is passed, contractor budgets and operations will be severely impacted.  Most agencies will be required to issue guidance on how contractors will receive, and are authorized to spend, the limited funding that will be distributed.  Continuing resolution funding levels in most cases will be no more than the previous year’s funding levels.  In addition, as with a funding gap, new program awards and starts will be delayed.

Government contractors may be able to mitigate the impact on cash flow caused by the conflicting loss of funding and the inevitable pressure that some agencies will place on them to perform at risk until the appropriations bills are passed.  Among other steps, contractors should consider:

  • reviewing all government contracts to determine whether any clauses, special provisions, or other requirements will apply during a funding gap or continuing resolution, including any obligations to continue working during the period based on the work being designated in the contract as essential to national security;
  • reviewing government contract funding levels and limitation of cost/fund clause to determine how long the current funds could potentially last;
  • reviewing applicable proposals, disclosure statements, and forward rate agreements for what the contractor stated it would be obligated to do should it be denied access to government facilities that are shut down; and
  • insisting that any work that the government requests be performed during such period be performed only following issuance of a funding authorization (commitment to fund and pay for all work completed).