How Government Contractors Can Protect Themselves During A Government Shutdown

At 12:01 a.m. on January 20, the Federal government began to shut down all non-essential operations, as Congress failed to pass a spending bill appropriating funding for government operations. Until Congress passes such a bill and the President signs it, federal employees, contractors, and grantees must operate in a very uncertain environment, as various federal laws restrict or prohibit government action beyond the appropriations authority that has just run out. The politics of a deal resolving the shutdown are unclear. Congress is discussing short-term funding extensions to resolve the shutdown, but these discussions do not resolve the underlying disagreements, and even if they succeed (which is uncertain), they may only postpone re-imposition of shutdown restrictions and prohibitions in the coming weeks.1

This Advisory is meant to guide federal contractors as they navigate their businesses through this uncertain period. Contractors should also monitor each of their customer agencies' websites for shutdown guidance. Many agencies, including the Department of Defense (DoD), Department of Homeland Security (DHS), State Department, and Department of Energy (DoE), and others issued such guidance on January 18 and 19.2 Contractors should be sure to stay apprised of developments with their specific customers, as different agencies and program offices may take their own approach to the shutdown.

The advisory proceeds in three parts. The first addresses when, if at all, contractors must stop performance during the shutdown. The second discusses how contractors may be reimbursed for work performed and costs incurred during the shutdown. The third addresses how contractors can save money during the shutdown without running afoul of applicable labor laws.

1. WHAT ACTIVITIES CAN CONTINUE DURING THE SHUTDOWN?

   The most immediate question for a contractor to consider during a shutdown is whether to stop work or continue performing. A government shutdown is not a self-executing stop work order; nothing about the mere fact of the government shutdown impacts a company's contractual obligations to perform as promised or the government's obligation to pay for that performance. DoD Shutdown Guidance emphasizes this point: "The expiration of an appropriation does not require the termination of contracts (or issuance or stop work orders) funded by that appropriation unless a new obligation of funds is required under the contract and the contract is not required to support an excepted activity." 3 What matters is whether your work requires any new appropriation or authorization of spending, and whether you will have access to critical government personnel, facilities, and resources you need to carry your work forward.

   Of course, regardless of the status of any appropriated funds, if your contracting officer issues a stop work order, then stop work and comply with the order (discussed further below). If you do not receive a stop work order, then the analysis becomes more nuanced, and involves assessing (a) whether your contract is deemed required to support "exempt" government activities and (b) how your contract is funded.

   1. Is your contract required to support activities exempt from the Anti-Deficiency Act?

      Many of the legal complications of a government shutdown derive from the Anti-Deficiency Act, which codifies Congress's so-called "power of the purse" by making it a criminal offense for any individual to obligate the United States to spend funds that Congress has not previously appropriated.4 The Anti-Deficiency Act permits four narrow types of activities without appropriations:

      Obligations not impacted by annual appropriations, for example, multi-year appropriations, indefinite ("no-year") appropriations, or obligations authorized outside of annual appropriations bills. The most commonly cited indefinite appropriation is Social Security. Obligations authorized by statutes that expressly permit obligations in advance of appropriations. For example, the Department of Defense and the Department of Homeland Security have statutory authority under the Civil War-era "Feed and Forage Act" to contract for necessary clothing, subsistence, forage, fuel, quarters, transportation, and medical or hospital supplies without an appropriation.5 Activities authorized by "necessary implication" based on the duties of a given agency. Such activities include, for example, writing and distributing Social Security checks, contracting for emergency services, and ensuring an orderly closing of government functions impacted by the shutdown. Obligations necessary to discharge the constitutional duties of the executive and legislative branch, including certain foreign relations and national security functions.6 Besides prohibiting over-obligation of available funds, the Anti-Deficiency Act also prohibits accepting personal services without compensation. Relevant to a government shutdown, this provision contains a narrow exception permitting the government to employ personal services exceeding those authorized by law "for emergencies involving the safety of human life or the protection of property."7

      Applying these exceptions to the Anti-Deficiency Act, the DoD Shutdown Guidance provides detailed information about which DoD activities are "excepted" and can therefore continue during the shutdown.8 If DoD deems your contract necessary to support an excepted activity, your contracting officer may expect you to continue performing as usual regardless of funding availability. Moreover, as indicated in the DoD Shutdown Guidance, contractors supporting these types of exempted programs may even receive new contract awards during the shutdown: "The Department may continue to enter into new contracts, or place task orders under existing contracts, to obtain supplies and services necessary to carry out or support excepted activities even though there are no available appropriations."9

      Other agencies have likewise indicated that they may continue to issue new awards in limited circumstances.10

   2. If your work is subject to the Anti-Deficiency Act, how is your contract funded?

      If you do not receive a stop work order and do not perform a contract required to support an excepted activity, then the principal question to consider is how your contract is funded. If your contract is fully funded, then continue to perform unless and until your contracting officer directs otherwise. This is also clearly stated in the DoD Guidance: "Contractors performing under a fully funded contract (or contract option) that was awarded prior to the expiration of appropriations may continue to provide contract services, whether in support of excepted activities or not."11 This principle applies to contracts with other agencies as well.12 The Department of Energy's shutdown guidance, in particular, emphasizes that most of its appropriations are multi-year or no-year, and therefore it expects, "in the immediate future," its "employees to continue to report for...