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What Happens In a Shut Down

  • It will happen fast! DoD guidance on the shutdown says it will take them about a half a day to shut down.
  • Government facilities will be closed.
  • The Government will define employees as essential or as non-essential.
    • Essential government employees will be expected to continue working.
    • Non-essential government employees will be furloughed and cannot work.
  • Government employees you regularly interact with may be furloughed and you will not be able to get in touch with them, this will include Government employees involved in the invoicing payment and approval process.
  • New contracts will not be issued, modifications will not be issued, and option periods will not be exercised.
  • You will be required to stop working on your prime contracts and subcontracts that are not funded for fiscal year 2024, which starts October 1, 2023.
  • Invoices will not be paid during a shutdown and invoice payments may delayed after the shutdown is over.
  • Even contracts are funded, performance will be impacted because you will have difficulty communicating with government employees since they will be furloughed during the shutdown and not available.

What You Should Do

1.    Review Your Contracts 

  • Review your contracts to determine if they are after September 30, 2023.
  • Review the guidance your agency has put out for their shutdown plans by googling your agency’s name and shutdown plan.  The plan will give you information on the operations and Government employees the agency considers essential and therefore guidance on how your contracts will be handled. Here is the DoD Shutdown Plan.
  • For contracts that are not funded after September 30, 2023, you should anticipate that you will be instructed to stop working on the contract.
  • Develop a list of your contracts and subcontracts that are likely to be stopped so you can prepare.

2.    Communicate with Contracting Officers and Prime Contractors

  • Reach out to your contracting officers and prime contractors to see:
  • If they have a plan for the shutdown
    • What that plan is
    • If you will be receiving a stop work notice
    • If your contracts are funded and you can continue working, find out who you should communicate with during the shutdown, that is, who the “essential” Government employees will be for your contracts
  • Appreciate that once the Government shutdowns, contracting officers and others may be furloughed almost immediately and will be unavailable to answer these questions, so please reach out this week
  • If you are instructed to stop work; if performance is impossible because you cannot reach government employees; or if the guidance you received from contracting officers is not clear, stop performance, reach out and we can give you guidance if needed
  • To the extent possible, take steps now to settle outstanding matters on each contract, whether you anticipate it will be shutdown or not:
    • Obtain approval for deliverables
    • Submit invoices for payment
    • Follow-up on unpaid invoices
    • Seek needed modifications
    • As needed, have the government issue options
    • See if you can get any contracts  you are expecting for next year to be signed.
  • Keep all your communications with your contracting officers and others as a result of the shutdown.

3.    Subcontractors 

  • Prepare a list of your subcontractors working on contracts that will not be funded as of October 1, 2023
  • Review your subcontracts to determine if you have a clause that allows for you to stop your subcontracts work
  • If you are issued a stop work order, notify your subcontractors as soon as possible as required in your subcontract
  • If your prime contract is issued a stop work, if you do not stop your subs from working, you may owe the subs for amounts you will not be able to recover from the government.

4.    Managing Costs

  • If you are notified to stop work, stop work immediately upon receiving the notice
  • Failing to stop working, may result in not being paid for the work
  • Track and document all expenses incurred as a result of the shutdown.  For example: time spent trying to reach Government employees;  costs to wind down and ramp up contract performance; additional labor costs; costs to  accelerate work; attorneys’ fees
  • Some expenses incurred as a result of a shutdown may be recoverable once the Government opens, even for fixed price contracts. Your ability to recover will be based on the documentation for the costs.
  • Develop plans to mitigate costs by developing an alternative work plan for employees, such as reassigning them to other projects that must be performed during a shutdown, encouraging them to take vacation time, or having them work on non-billable matters such as training.

5.    Employees

  • For your employees on contracts that are stopped, you will need to develop a plan:
  • Can they be deployed elsewhere during the shutdown?
  • Do you need to furlough employees?
  • Do you need to eliminate positions?
  • Can you have employees use paid time off?
  • Do you need to disable devices so your non-exempt employees who are furloughed, can’t work?  If they do, you may owe them their salary.
  • When developing your plan, please consider that once the shutdown ends, the Government will expect your employees to start working on the contracts almost immediately, so have a plan to get employees re-deployed after the shutdown
  • If you do furlough or lay off employees, please be sure to consider:
    • What becomes of their fringe benefits, like health care, 401(k) benefits and Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage
    • Will they be eligible for unemployment benefits
    • Federal and state wage-hour laws, to the extent applicable to your employees
    • If you plan to require your employees to use accrued paid time off (“PTO”) during shutdown make sure it does not run afoul of applicable wage-hour laws
    • If your exempt employees are working but only sporadically, be sure to review how they must be paid so they don’t lose their exempt status
    • If you have more than one hundred employees and you are laying them off, determine if you must provide notification to your employees and to local governments under the federal Worker Adjustment Retraining Notification Act (“WARN Act”)

Why the Stop Work

For background on why the Government may shutdown, we can turn to our high school civic classes and the idea that there are three branches of government.  One branch, Congress has budget responsibilities. When budgeting Congress authorizes money to be spent for particular purposes.  The executive agencies, another branch of Government, then must spend the money as Congress directed.  If there is a shutdown, Congress does not budget money for the most part and therefore agencies do not have money to spend money.  Government employees are furloughed and work stops because spending money for salaries and contracts that are not authorized would violate the Anti-Deficiency Act which makes it a crime to spend unauthorized funds. Read more here: Cassidy Law Blog:  Anti-Deficiency Act.


Why Is This Happening 

It is happening because our elected officials can’t get along and can’t reach consensus on how to spend our money.

Imagine if this happened in your business:  Your Finance team could not get to consensus with IT, HR, BD, Engineering and others in your organization on their budgets, so, Finance decides to just not fund any of your functions.  Would you put up with that or would you make some changes on your team?

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