Government Contracts Monitor

Here We Go Again - Another Possible Federal Government Shut-Down - Actions to Take Now

December 20, 2018

As recently as yesterday morning, I had shelved this article for at least a couple of more months. However, developments yesterday significantly increased the likelihood of a partial Federal Government shut-down at midnight tonight, causing me to resurrect and publish this today. As you no doubt know, President Trump has been threatening a possible shut-down since last year if he does not get his desired $5 Billion for the proposed U.S./Mexico border wall. And indeed, as recently as last week he stated that he would be “proud” to shut-down agencies over this issue. However, he backed-off this demand at the end of Fiscal Year 2017 (“FY17”) and again at the end of FY18. And earlier this week it looked like such was going to happen again. Indeed, on Wednesday the Senate passed a further Continuing Resolution (“CR”) that would have kept the full Government operating thru February 8, 2019 – without the $5B for the Wall – and it looked like the House was set to follow suit yesterday. However, yesterday morning President Trump rejected the Senate bill, and reasserted his demand for the full $5B for the Wall. The House passed a proposed CR including the demanded $5B yesterday, and such will go before the Senate today. However, as of this morning Senate Democrats remain steadfastly opposed to the Wall, and it does not appear that Trump can muster sufficient votes to get the bill passed in the Senate. Unless this changes or he relents, a shut-down will become a reality tonight.

The only good news is that this time around Congress has already approved, and President Trump has signed into law, legislation accounting for 75% of annual discretionary appropriations for FY19. This approved legislation funds the Departments of Defense, Labor, Health & Human Services, Education, Energy and Veterans Affairs, among other agencies. These agencies thus will not be impacted by any shut-down tonight, and business with those agencies will continue unaffected. However, the balance of the Federal Government has yet to be funded for FY19, and is presently operating pursuant to a CR that expires at midnight tonight, and thus is at risk. This includes the Departments of Transportation, Housing & Urban Development, State, Interior, Agriculture, Treasury, Commerce, Homeland Security and Justice, as well as other independent federal agencies. These agencies will be forced to shut-down after midnight tonight, if no agreement is reached.

If you are doing business with these agencies, you need to act today, if you have not already done so, to ascertain their plans as to your contracts. Specifically, you should review your current contracts, and communicate with the respective government contracting officers as to how to address a possible federal government shut-down. Action now will enable you to respond appropriately in the event of a shut-down, and minimize adverse impacts to government programs, control non-reimbursable costs and mitigate, document and account for shut-down costs for which the Government will be liable.

Recommended Actions: Every affected government contractor should review the contingency plans of the respective affected agencies with which they deal, which are available on-line, and take the following steps:

Review and determine the impact of a shut-down on each individual contract and pending contract actions;
Communicate with the cognizant contracting officer on each contract about a shut-down’s effects and the actions to be taken, including, as to ongoing contracts, access to government facilities, personnel and information (including classified information), and how to obtain any needed government approvals, authorizations (including for payment) and directions, or obtain inspection and acceptance of goods being delivered;
Avoid volunteering or agreeing to continue work under shut-down contracts that will not be compensable;
Determine the impact on employees and how best to respond, including whether to reassign, otherwise engage (e.g., training), put on paid vacation leave or furlough such employees, and timely communicate the same to the employees (special problems may arise and need to be decided in the case of employees overseas or operating at a distance from their “home” base);
Notify (in writing) and coordinate with any teaming partners and affected subcontractors and suppliers immediately upon receipt of any actual or constructive “stop work” order, and ensure that each is aware of its flow-down duties and responsibilities, including the duties to mitigate, and to separately document and account for, all shut-down related costs;
Set-up separate cost accounts for shut-down costs for each affected contract, and ensure that all cognizant personnel fully document and account for all associated costs;
Identify and take all reasonable steps to mitigate shut-down related costs, and document all decisions; coordinate such actions, where necessary, with the cognizant contracting officer in an effort to get him/her to buy into, or at least be aware of, your cost mitigation efforts and decisions; and
Timely submit and claim reimbursement for all reasonably incurred shut-down costs.

In addition, contractors should assess the impact of a shut-down on non-contract deadlines. Contractors also may want to assess their ability and plans to continue other business operations in view of delays in government payments in the event of a shut-down. Contractors may want to review their available bank credit lines or other financing sources, to ensure sufficient credit availability and flexibility to deal with possible Government payment delays. They also should expedite the submission of any pending invoices for current work.

Background: No money can be paid from the Treasury except pursuant to Congressionally-passed funding authorizations. Federal officials cannot obligate funds before an appropriations measure has been enacted, and cannot accept voluntary services. However, contracting officers are authorized to incur costs necessary to shut-down operations.

This means that contractors cannot rely upon oral or even written assurances, and should not “volunteer,” with the expectation of being paid later. While government employees have been paid retroactively in connection with past shut-downs, the same cannot be said as to contractor employees. Contractors therefore need to protect themselves.

Legal Parameters: If there is a shut-down, all contracts dependent upon unfunded FY19 funding will be shut-down, with only limited exceptions for activities determined necessary to save lives or protect property. Contracts that are already fully funded will not be affected, nor will those few contracts otherwise authorized by law to continue notwithstanding a shut-down.

Ideally each contracting officer would issue a “stop work” order for each affected contract, directing each contractor specifically as to what to do on such contract. However, it is more likely that contracting officers will issue broad guidance memos affecting multiple contracts, under which each affected contract will be subject to a “stop work” order. Upon receipt of notice, each affected contractor will be obligated to shut-down operations as directed, and mitigate the Government’s shut-down costs exposure. Contractors will be entitled to recover reasonable and necessary shut-down costs. However, contractors will need to carefully document and separately account for such costs, and timely submit appropriately documented claims to recover them. Re-start costs will need to be tracked separately, and should be negotiated at the time of re-start. “Volunteered” interim activities will not be reimbursed; and any promises or agreements to compensate interim activities likely will not be honored as being outside the authority of any involved government official.

During any shut-down contracting officers will be barred from making new awards, issuing new task orders under ID/IQ contracts, entering into contract amendments or modifications and exercising contract options, which depend on current year funding. Note that other government deadlines, such as for option exercises, proposal submission, claims and agency appeals, bid protests and court filings, will not necessarily be stayed by a shut-down, and contractors will need to assess carefully their obligations in each such instance.

Conclusion: If a partial shut-down occurs, such will have far-reaching consequences for all affected government contractors dealing with the subject unfunded agencies, going to the very heart of their business operations. Contractors need to be prepared and take appropriate actions to minimize their costs and the adverse business impacts of a shut-down. The key is careful planning and timely and regular communication with all involved, particularly the relevant government contracting officers.

Attorneys

Hopewell Darneille