The Government Avoided Another Shutdown. Here’s How You Can Prepare for Another Round in December.

With Wednesday’s passage of a continuing resolution, Congress has approved funding to avoid a government shutdown – at least through December 9th. What happens next is anyone’s guess.

We’ve been here before – several times. What’s a Federal contractor to do in the event of a government shutdown? Our advice? Contractors should do pretty much the same as in previous years, specifically:

Prime Contracts: Organize your Prime contracts and discuss them with your Contracting Officers to see which contracts will remain funded and operational.

Subcontracts: Organize your subcontracts and talk with your Prime Contractor to see which contracts they believe, or have heard, will remain funded and operational. For those contracts that do not remain funded, determine where you fall in the hierarchy of subcontractors.

Make contingency plans for a shutdown.

  • Staffing: Determine which staff would be idled by a shutdown and decide what to do with idle staff (overhead vs. furlough).
  • Subcontractors: Make a plan for what you will do with subcontractors and take a look at your subcontract provisions to make sure you can do what you planned to do.
  • Communications: Develop a communication plan to be used during the shutdown and put the mechanisms in place now.
  • Cash flow: Plan for an interruption of cash flow and speak with your bankers now.
  • Accounting: Have accounting provide for segregation of shutdown costs in case they are recoverable.

The recoverability of direct costs incurred during a shutdown in anticipation of a future award is extremely doubtful. Similarly, recoverability of direct costs incurred on a contract that was previously funded, but is now out of money (the infamous “waiting for the mod” situation), isn’t much better. It is possible, or even likely, that costs incurred during a gap in funding during a shutdown may be specifically barred from reimbursement when that modification finally arrives.

Funded contracts, regardless of type, should be unaffected as long as any required access to Government facilities or personnel is still available. If not, it may not be possible to continue performance and direct costs incurred during a lapse in performance will probably not be allowable.

Of course, if you receive a stop work order, everything changes. This is one of the few instances where a stop work order probably isn’t the worst case scenario. At least, under a stop work scenario, there are specific rules concerning the allowability of shutdown costs.

The flowchart below can help you assess your shutdown exposure on a contract-by-contract basis. We are recommending that companies distribute the flowchart to their project managers, have them annotate the chart with the task or contract name/number and value, and then highlight or annotate each active contract or task order. When completed, the company can compile the results to assemble a good picture of the impact of a shutdown. Not a bad start on an action plan, either.

what-to-do-if-fed-gov-shuts-down

So, the big question. How likely is a Government-wide shutdown after December 9th? Nobody really knows. In the past, Congress has been known to let the clock tick down to 30 minutes before the deadline. All we can do is to be prepared.

Contact
For additional information, please contact Christine Williamson, Partner, Government Contracting Practice Leader, at 703-847-4412 or christine.williamson@cohnreznick.com.

© 2016 CohnReznick LLP


About CohnReznick

CohnReznick LLP is one of the top accounting, tax, and advisory firms in the United States, combining the resources and technical expertise of a national firm with the hands-on, entrepreneurial approach that today’s dynamic business environment demands. Headquartered in New York, NY, and with offices nationwide, CohnReznick serves a large number of diverse industries and offers specialized services for middle market and Fortune 1000 companies, private equity and financial services firms, government contractors, government agencies, and not-for-profit organizations. The Firm, with origins dating back to 1919, has more than 2,700 employees including nearly 300 partners and is a member of Nexia International, a global network of independent accountancy, tax, and business advisors. For more information, visit www.cohnreznick.com.

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Comments are closed.