The Government Shutdown’s Impact on Payment to Contractors

All companies contracting with the Federal Government should ensure that they are doing everything they can to protect themselves and maximize their chances of payment once the government shutdown ends. Congress has approved back pay for federal workers once the shutdown is over, and President Obama recently signed a bill requiring the DoD to continue paying civilian Federal Government employees and contractors that provide support to the armed services.  Government contractors, however, have been put in limbo, and need to make careful decisions while navigating the shutdown.

Contractors who do not serve the armed services must typically operate on a case-by-case basis, and should stay in contact with their Contracting Officers (COs) and Contracting Officer Representatives (CORs), if they are working, to understand what the procuring agency is doing and how it is operating during the shutdown. The worst thing to do is to drop off the CO’s communication radar and give the CO proof by way of an email track record that your company did not contact him or her during the shutdown to confirm understandings on contract performance. Assumptions cannot be made during this uncertain time, so it will be beneficial to contractors to send regular written communications to agency representatives to ensure everyone is on the same page.

Each contract will have varying factors affecting its appropriation, but generally speaking, a contractor should not expect to get paid for work it does not perform – the Federal Government cannot accept payment for voluntary services under the Anti-Deficiency Act. However, contractors covering work that is fully funded, or incrementally funded and not yet reaching the funding limit, should still be funded by the Government, although each case can differ. Time and materials contracts are more problematic, and contractors should proceed with caution. FAR § 52.242-15 gives the Government discretion to terminate or suspend work independent of whether a contract is funded, and so if contractors have not already initiated creative cost-cutting mechanisms, now is the time to think outside the box and be protective.

Hopefully Congress can lead the way to a solution so that the current standoff can end, and hard working contractors can go back to work and slowly resume a normal and uninterrupted routine to help federal customers achieve their missions.

Katie Lipp is an attorney the Washington, DC regional business law firm Berenzweig Leonard, LLP. She can be reached at KLipp@BerenzweigLaw.com.