Another Potential Shutdown on the Horizon: How Can Contractors Prepare

This is, unfortunately, the reality of doing business with the government and contractors should be prepared and understand the mechanics of a shutdown.

SHUTDOWN BASICS

Agencies cannot incur obligations unless otherwise authorized by law; but they have permission to incur obligations (but not payments) necessary for the “orderly termination of an agency’s functions,” and to perform “essential” duties. This includes:

• Medical care – Inpatient and emergency outpatient
• Activities to ensure continued public health and safety
• Continuance of air traffic control and other transportation safety functions
• Border and coastal protection and surveillance
• Protection of federal lands, buildings, waterways, and other property
• Care of prisoners
• Law enforcement and criminal investigation
• Emergency and disaster assistance
• Activities essential to the preservation of the money and banking system
• Ensure the production of power
• Maintain protection of research property

Agencies are allowed to spend funds that DO NOT originate from annual appropriations. 

Agencies such as GSA and the US Postal Service, which fund much of their operations with user fees, can continuing operating. Obligations made from previously appropriated dollars, and programs funded with multi-year dollars can also continue to operate, however, they may be impacted by the lack of federal employees around to manage them if they are not considered essential services.

A government shutdown impacts everyone, but the scope of the impact depends on who you are. A federal hiatus impacts anyone relying on or providing federal services.

• Non-exempt federal employees:
  • Depending on the length of the shutdown, they would be furloughed with benefits intact
  • Based on past shutdowns, Congress often comes back later and provides back pay

• Agencies (depends on the length of the shutdown):
  • Ripple effect from delayed programs (timing and increased contracting costs)
  • Lost revenue from user fees collected for various services across government. Many agencies rely heavily on user fees and collections.
  • Administrative costs associated with shutting down and ramping up – this has estimated in the millions for some agencies.
  • Additional costs and penalties related to late payments to various entities, including contractors. Contractors can receive reimbursement for some costs incurred due to the shutdown.
  • Lost productivity
  • Loss of disillusioned employees who leave public sector employment
  • Inability to hire, making it difficult to fill positions by end of fiscal year

• Federal Contractors:
  • The ability to continue to work depends on the nature of the contract and where the work is performed.  Information and communications systems that support historically-defined “essential functions” will likely be operational (e.g. supporting defense communication networks, information security, systems related to critical infrastructure protection, etc.). Implications:
    • Incrementally funded contracts not funded
    • Delays in program solicitations and awards
    • Part of contracts may be essential while others aren’t
    • Delayed payments - vendors with products paid for in advance are likely unaffected but services not yet rendered will be halted
    • Direct and indirect expenses due to the shutdown may or may not be recouped
    • Impact on schedule and milestone-based performance metrics
    • Potential need for employee layoffs – depends on length of the shutdown

• Citizens: Services are limited; call centers not staffed; applications for visas, social security and veteran’s benefits are paid but can be delayed; and museums and national parks are closed.

Federal employees supporting essential functions will get paid after appropriations are passed.

However, it’s up to Congress to decide to pay non-essential furloughed employees once the shutdown is over.  In past shutdowns, all employees (essential and non-essential) did receive back pay.

The number of essential employees can vary and may be more than you think.

It’s highly likely that more employees will be exempt than furloughed. Agencies are required to develop shutdown contingency plans that assesses the number of employees who are exempt from being furloughed, primarily employees (government and contractor) that:

• Receive salaries that are not funded through appropriations
• Work on activities that are authorized or necessarily implied by law
• Work on activities that are critical to the President’s ability to execute his constitutional duties
• Are necessary to protect life and property

Mandatory programs are exempt but will still be affected.

For example, Social Security payments will continue and field offices will be open, but they cannot issue or replace Social Security cards.

WHAT SHOULD CONTRACTORS DO?

Should the Senate fail to pass appropriations and the government does go into a shutdown, contractors should be prepared to navigate through it AND deal with the aftermath. Five things contractors should be doing:

• Heed pre-shutdown deadlines. Whether it’s bid protest deadlines, RFP and RFI response dates, or program deliverable deadlines, contractors should operate as though the government is operating. DO NOT ASSUME DATES WILL CHANGE. Submit everything on time and document all attempts to do so. Monitor GovWin for updated timelines should they become available.
• Document EVERYTHING. Contractors may have some recourse for reimbursement for costs incurred due to the shutdown or those incurred to restart stopped work. It’s also important to document attempts to adhere to program milestones, especially those for excepted activities that continued but were severely hamstrung by the lack of access to government POCs.
• Maintain frequent communication with agency customers still on the job.  Some affected agencies are continuing to operate by leveraging alternate funding streams (such as carryover funds from previous appropriations and collected fees) to continue operations. However, those funds can only go so far. As that funding dries up, agencies may choose to allow the employees paid with those funds to continue working unpaid, or execute furloughs. Make sure you are aware of changes in the status of employees you rely on to continue working.
• Be ready for a contracting uptick AND delays when the shutdown ends. Shutdowns create obvious contracting bottlenecks that affected agencies will try to mitigate when funds become available. They’ll be working to get planned RFPs out the door quickly so they can get them awarded within the current fiscal year (or possibly face the impact of, at minimum, a continuing resolution for FY 2022 appropriations). They will also be doing cleanup – assessing the expected and unexpected unforeseen impacts of the shutdown on program milestones and budgets, activating option years that came into play but weren’t executed during the shutdown, and possibly reevaluating acquisition strategies.
• Be ready to move quickly to mitigate internal damage. Contractors will also have significant work to do – submitting invoices for work completed (and funded) but unpaid, recalling employees moved to other projects, assessing the shutdown’s impact on Bid & Proposal (B&P) resources, and dealing with subcontractors who may have experienced financial distress that affects their ability to continue the work. Treat the shutdown like a project – with a project manager – who can help shepherd the organization through the process.
• Check on your protest. If the last shutdown in December 2018 is any indication, GAO will not be operational under a government shutdown, so protest filings are unlikely to be reviewed. However, GAO does try to adhere to the 100-day timeframe for protest decisions. The Court of Federal Claims remained open.

Shutdowns have operational and financial ripple effects that can, depending on the length, impact agency missions, employee morale and contracting momentum. Given the collection of recent shutdowns – January 2018 and December 2018 – let’s all hope that this can be avoided for FY 2022.