How likely is a Government-wide shut down? President Trump appears to be willing to have it happen and Congress has been known to let the clock tick down to 30 minutes before the deadline. The last shutdown for Fiscal Year 2014 lasted 16 days and the longest shutdown lasted 21 days in 1995-96. All a federal contractor can do is to be prepared.
What a Federal Contractor Should Do Now
- PRIME CONTRACTS: Organize your prime contracts and discuss them with your Contracting Officers to see which contracts will remain funded and operational. Submit your invoices early if possible.
- SUBCONTRACTS: Organize your subcontracts and talk with your prime contractor to see which
contracts they believe or have heard will remain funded and operational, and for those that do not,
where you fall in the hierarchy of subcontractors. Submit your invoices early if possible.
- Make multiple CONTINGENCY PLANS for varying length of shutdowns:
- STAFFING: Determine which staff would be idled by a shutdown and decide what to do with idle staff (overhead vs. furlough). This may be a good time for vacations or training. And look at WARN Act employee advance notification requirements to see if it applies to your company.
- 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 plan 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 in cash flow and talk with your bankers now.
- ACCOUNTING: Have Accounting provide for segregation of shutdown costs in case they are recoverable.
What a Federal Contractor Needs to Know
Funded Contracts, regardless of contract type (FFP, CP, T&M, etc.), 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. It is critical that contractors document any inability to work (government facilities locked, no access to government personnel, etc.).
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 allowability of shutdown costs (follow FAR Subpart 42.1303 requirements).
And remember that the Anti-Deficiency Act (31 U.S.C. § 1342) prohibits the Government from accepting “Voluntary Services” from contractors. Don’t volunteer – you will not be paid and it may impact your ability to recover other shutdown-related costs such as unabsorbed overhead and employee separation costs. Submission dates will not be changed due to a Government shutdown. Even if there is no one at the Government to receive your filing (GAO, DCAA, DCMA, etc.), you must still meet the filing deadline.
Below is a flowchart that CohnReznick developed to help assess shutdown exposure on a contract-by-contract basis. We recommend that a company distribute the flowchart to 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 done, 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.
Contact: Rebecca Kehoe at Rebecca.Kehoe@CohnReznick.com