Surviving a Government Shutdown: A Contractor Perspective Editor’s note: With the current short-term funding bill expiring April 8, a partial government shutdown is again a possibility. Republicans, Democrats, federal executives and—of course—contractors are weary of the repeated week-by-week extensions of the government’s spending authority. More than halfway through the fiscal year, the two parties are still bickering over budget cuts. This guide to contingency planning for contractors was prepared by Thomas Marcinko of Aronson LLC in Rockville, MD, and is used by permission. Of course the shutdown could still be averted. Or it could be of such a short duration that it is only a minor inconvenience. But with so much at stake, it would be foolhardy for government contractors to assume a shutdown won’t happen. Though many things such as the duration are unknown (the 1995 shutdown lasted more than threesb weeks) one thing is certain. Contractors that have prepared will suffer less than their unprepared competitors. Toward that end, Aronson recommends that government contractors develop a “shutdown contingency plan.” The specific steps are outlined below. 1. Evaluate your contracts. Companies should assign someone, whether a corporate team or the assigned project manager/contracts administrator, to review each contract. 2. Seek guidance from the contracting officer. Contracting officers are responsible for providing guidance to the contractors. You should be proactively and regularly contacting your contracting officer to obtain as much specific direction regarding the shutdown as you can. Ask specific questions based on your evaluation such as “We have three employees deployed overseas. It will cost over $20,000 to bring them home and reposition them when the shutdown is over. It only costs $2,000 a week to keep them there. How would you like us to handle that?” The more specific direction you get the easier it will be to get reimbursed later. Of course all direction received should be documented in writing and followed. Your contract files should contain documentation that the instructions were followed. Subcontractors should seek guidance from the prime contractor. 3. Classify your contracts. Aronson recommends classifying your contracts into one of four categories because as you will see, each category requires different actions. The categories and actions are summarized below. a. Mission Essential. Some of your contracts may be considered mission essential and thus exempt from the shutdown. Your contracting officer will inform you if this is the case. You may continue to perform these contracts under a business as usual approach. b. Stop work orders and terminations for convenience. Some contracting officers will issue stop work orders or in unusual cases may terminate the contract. In that case, the contractor has no choice but to react in accordance with the requirements of the stop work order clause or the termination clause. The good news is that in these instances, the regulations are very clear as to what the contractor must do and how the contractor is to be reimbursed. c. Possible to perform. Unless your contracting officer has directed otherwise, contracts that have sufficient funding and period of performance and do not require access to government facilities or personnel can and probably should be performed even though they are not mission essential. However, these contracts still need to be monitored because, if the shutdown lasts long enough, the contract for a variety of reasons may ultimately become impossible to perform. Also, depending on the circumstances, there may not be anyone available to process your invoice. d. Impossible to perform. This is the most troublesome and potentially risky classification for contractors. Contracts in this category are not mission essential nor has a stop work order been issued. Yet the nature of the work is such that the contract cannot be performed during a shutdown. Of course the contractor should follow the specific directions provided by the contracting officer. In cases such as this, the contracting officer is probably going to suggest some kind of soft shutdown. However in some cases the contractor may not have received instructions or the instructions were too general or were unclear. This is not a legal term, but the contractor should treat situations where the government shutdown prevents a contractor from performing the contract as a “constructive” stop work order. In those cases, the contractor should cease performance as required by the stop work clause. The assumption is the same procedures and rules that govern contractor compensation when a formal stop work ordered is issued should work equally well in situations where the government’s actions effectively stopped the work without the formality of a stop work order. 4. Separately account for expenses attributable to the shutdown. Contractor should segregate their shutdown costs by contract by establishing separate charge numbers. The contractor should also document the reason the shutdown costs were incurred. These expenses need to be documented in a manner that can be audited by the government. This is true even if the contract that is being stopped did not require an audit when it was awarded. The contractor should also be able to show how the sudden loss of contracts adversely affected their indirect rates. 5. Develop plan for employees. Contractors are not likely to be reimbursed for wages paid to idle employees. Thus contractors should try to relocate employees to locations where they can perform the work or reassign employees to other projects that are funded. This could be a good time to attend training. If no other options are available, employees should be offered the option of taking accrued personal leave. Only in the last instance, after careful consultation with your Human Resources department, should employees be furloughed. 6. Where possible, complete actions before the shutdown. Contractors should make every effort to get outstanding invoices paid, modifications issued, tasks awarded, deliverable approved, etc. before the government shuts down. 7. Notify the contracting officer of the impacts of the shutdown. Do not assume the impacts are obvious to the government. You need to notify the contracting officer each time the shutdown affects your ability to perform the contract. 8. Provide direction to your subcontractors. Each subcontract should be reviewed to ensure that important clauses such as the Limitation of Funds clause are included. All subcontractors should receive clear instructions from the prime regarding the shutdown. 9. Cash flow. Invoices may not be paid or at the very minimum payments will likely be delayed. Contractor should analyze their project cash flow to ensure solvency and notify their line of credit bank. Conclusion Most government contracting professionals have at best limited experience with government shutdowns of this magnitude. Nobody has experience with shutdowns when so many service contractors are affected. Therefore, it is unlikely that everything will proceed smoothly. Even the most optimistic among us are predicting at least some level of pain and suffering for all parties concerned. However, by following the steps outlined above, contractors can minimize the damage and survive the shutdown.