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With Congress still at a gridlock in approving a spending bill, Federal Agencies across the Nation have begun to close their doors and send employees home. The impact of the government shutdown carries a ripple effect that may include government contract claims. While there is not currently a fixed end in sight, historically shutdowns have never prolonged past twenty one (21) days, typically lasting no more than a few days.  However, Federal Agencies are forced to effectuate the shutdown as the Agencies’ operations are funded by tax payer dollars.  Under the Anti Deficiency Act (31 U.S.C. § 1341), spending tax payer dollars is prohibited prior to congressional appropriation.  A violation under this Act may result in a felony indictment.

Due to the prohibition on spending, Agencies have begun issuing temporary stop work orders on Federal contracts based on an “unavailability of funds.”   As Prime and Subcontractor’s begin to feel the impact of the government shutdown through temporary stop work orders, there are growing concerns over contractual rights and responsibilities.

The Government’s authority to stop the work stems from a provision in the contract incorporating the Anti Deficiency Act, and the Federal Acquisition Regulation’s express requirement that Government contracts be conditioned upon the “availability of funds.”  FAR 32.702 (b).  This clause permits the Government to halt work under contracts when funding has been cut or delayed, providing leeway in situations like a shutdown.

While it is always best to consult with an attorney on the specifics of your contract, there are some things you can do today to best equip your company for the shutdown of a contract.

  • First, assess what costs cannot be avoided if performance on your contract is cancelled.  For example, does your company provide health insurance?  Can your premiums be stopped and reinstated after the shutdown?
  • Second, assess what costs are required for your company to maintain the ability to re start performance immediately upon Government re-opening.  Consider whether supplies will need to be ordered, staff trained, etc.  Remember if you are a Prime, this applies to your Sub contractors as well; consider what materials, equipment and resources Subs may need to begin performance immediately.
  • Third, explain to your staff and Subcontractors the effects of a possible government shutdown.  Explain that it has lasted twenty one (21) days in the past, but that it historically only lasts about three (3).  Most importantly, explain that once a stop work order is issued, work must stop immediately.
  • Fourth, if you receive a temporary stop work order on a contract, review the order.  The first thing to look for is the date the stop work order goes into effect; if it is the date you received the letter, or a future date, the order should say.  Also look at whether all work is to stop or only some performance.
  • Fifth, stop all work under that contract as of the date the stop work order goes into effect.
  • Sixth, notify all sub contractors and vendors to stop all work under the contract as of the date of the order.
  • Seventh, consider providing a detailed list of the unavoidable costs to the Contracting Officer (CO) to establish a framework for future discussions on payment.  Keep in mind that the CO is not your legal representative, so it is advised to contact your attorney prior to assessing and submitting any cost detail to the CO.

Mitigating and recouping your damages should be the top priority throughout the Government shutdown.  Following the above seven steps will put your company on a solid foundation and enable a quick resolution of claims.  If you require an attorney, the team at Watson Associates, LLC specializes in Government contracts and provides a wealth of experience in both the civil and Government environments.  From contract assessment to shutdown implementation and reversal, Watson and Associates have the expertise necessary to navigate and facilitate your company throughout the transition.

contract claims process for government contracts

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