In today's political climate, the threat of a potential government shutdown is seemingly omnipresent. In 2023 alone, Congress needed last-minute legislation on two occasions to avoid a lapse in funding and keep the government open. The most recent continuing resolution (CR), passed in November, extends appropriations through January 19, 2024 (or February 2, 2024, depending on the specific government funding in question). The passage of the 2024 National Defense Authorization Act (NDAA) on December 23, 2023, did nothing to appropriate funds for the Department of Defense (DoD) – it simply authorized the use of the funds when appropriated. With another shutdown looming, contractors should be mindful of the potential impact on their contracts. Below we provide a few items to keep in mind when preparing for the next shutdown. 

1. Be Familiar with Fiscal Law Principles and Rules

A lapse in appropriate funding implicates the Anti-Deficiency Act (ADA), which prohibits federal officials from obligating funds in excess of an appropriation. See 31 U.S.C § 1341(a)(1). In other words, any government contract without previously appropriated funding cannot continue performance during a shutdown. However, there are certain exceptions to the ADA that allow for continued performance, including:  

• A statute or other legal authority expressly authorizes an agency to obligate funds in advance of appropriations. Examples include: the Feed and Forage Act, 41 U.S.C. § 6301, which provides DoD the authority to contract for necessary clothing, subsistence, forage, fuel, quarters, transportation, or medical and hospital supplies in advance of appropriations; 25 U.S.C. § 99 (Bureau of Indian Affairs contracts for goods and supplies) and 41 U.S.C. § 6302 (Army contracts for fuel).
• Obligations funded by multi-year or indefinite appropriations that are therefore not affected by a lapse in annual appropriations. 
• Obligations that address emergency circumstances such that the suspension of the function would imminently threaten the safety of human life or the protection of property. See 31 U.S.C. §§ 1341, 1342. 
• Obligations necessary to the discharge of the president's constitutional duties and powers (e.g., Commander-in-Chief, conduct of diplomacy, supervising the Executive Branch, and participating in the legislative process).
• Activities that an agency must continue in the absence of appropriations because their continuation is "necessarily implied" from the authorized continuation of other activities (e.g., orderly shutdown activities, payroll processing for funded agencies or activities).

2. Many Agencies Provide Contingency Plans for a Potential Lapse in Appropriations 

In advance of a potential shutdown, agencies often issue a contingency plan to detail operations during a lapse in appropriations. Among others, plans were issued this fall from the Departments of Homeland Security (DHS), Justice (DOJ), Defense, and the General Services Administration (GSA). Any plans are made in accordance with Section 124 of the Office of Management and Budget (OMB) Circular No. A-11 that provides guidance to agencies in the event of a shutdown. Contractors should be sure to review the relevant contingency plan governing the conduct of its contracting partner's agency. 

3. Rekindle Your Knowledge of Your Contract and Its Clauses

In practical terms, a lapse in appropriations means contracting officers (COs) cannot execute the award of new contracts or grants, execute most modifications, or exercise contract options. Simply put, contractors should plan on delays in these contractual actions and plan accordingly. 

For existing contracts, a determination should be made regarding their funding structure: is the contract fully funded (i.e., funds have already been obligated to cover the price of a fixed-price contract or the cost of a cost-reimbursable contract) or incrementally funded? See gen. Federal Acquisition Regulation (FAR) 32.7. Incrementally funded contracts (or contracts subject to FAR 52.232-18, Availability of Funds) will almost certainly be affected by the shutdown. The same does not necessarily hold true for fully funded contracts where performance may continue during the shutdown, however, they may still be impacted. In this regard, COs are often encouraged to suspend continued performance of contracts where the activity is not statutorily required, in order to sensibly use taxpayer funds and avoid waste in light of the lapse of appropriations. For example, if a federal building is closed due to the shutdown, an agency may determine that it would be wasteful to continue performance of the janitorial contract for that building. In that situation, the contractor's performance may be suspended, even if the contract is fully funded.

Among other issues to review, the inclusion or incorporation of a stop-work clause is of heightened importance. See FAR 52.242-15 Stop-Work Order; see also FAR 52.242-14 Suspension of Work. COs will utilize these clauses to stop work if necessary due to a lack of appropriations. Any stop-work order should provide specifics including a description of the work to be suspended, instructions concerning the contractor's issuance of further orders for material or services, guidance to the contractor on action to be taken on subcontracts, and other suggestions to the contractor for minimizing costs. See FAR 42.1303. 

4. Dust Off and/or Update Your Government Contacts: Communication is Key

Proper preparation requires active engagement by the contractor to their authorized contracting official. Communications with the government should start soon after the potential for a shutdown becomes apparent — the earlier the better. Think now!

Pertinent questions to consider asking include: 

• Who will be the contractual point of contact during the showdown? 
• What relevant guidance (i.e., contingency plan, etc.) is the agency following? 
• Will any work under contract be deemed essential? 
• Is there a basis to argue the continuation of contact performance is "necessarily implied" and thus an exception to the ADA? 

Under these circumstances, a CO may be responsible for dozens of contracts and facilitating the shutdown with respect to each. As such, it behooves contractors to communicate early and with an established plan in place. Further, contractors who approach their CO with a well-reasoned basis for why their contract performance is essential or otherwise should be excepted from the ADA may increase their chances of avoiding a suspension of work. As always, documentation of all government communications is paramount to avoiding any liability and maximizing any recovery, if applicable, down the road. 

5. Communicate With Your Internal Team (and Your Subcontractors)

Internal communications are just as important as interacting with relevant government points of contact. Policies and procedures should be put in place so that contract performance (and cost incurrence) can be stopped efficiently once a stop-work order issued. Key considerations include:

• Properly documenting all incurred costs related to winding down performance, as this will increase the chance these costs can later be recovered.
• Determining how to handle furloughed employees. Again, early and often communication is crucial. Contractors should be cognizant of their relevant legal obligations, such the Fair Labor Standards Act (FLSA) and relevant state wage and hour laws, when making determination regarding pay, paid time off, and the reassignment of employees within the company. 
• Adequately consulting all key stakeholders — contracts, operations, human resources, legal, etc. — and ensuring they understand their respective responsibilities prior to and during a shutdown. 

Likewise, any necessary communications to subcontractors, suppliers, partners, and vendors should be timely, in writing, and otherwise in accordance with the details prescribed in the relevant stop-work order. See gen. FAR 42.1303(c)(3). It is imperative that subcontractors understand their obligations to limit performance activities efficiently and document incurred costs relating to performance wind-down, in the same manner as the prime contractor. 

6. Your Ability to Protest and Litigate May be Impacted

How will tribunals react to a government shutdown? Without a crystal ball, the best guidance is recent history. For example, as we discussed in September 2023, GAO ceased operations during the government shutdown of 2013. At the same time, GAO extended bid protest deadlines by the 16-day length of the shutdown. That year, the Armed Services Board of Contract Appeals (ASBCA) and Civilian Board of Contract Appeals (CBCA) both remained open for the purpose of accepting filings. The CBCA even clarified that the shutdown did not waive or toll any statutory time limits. Federal courts, including the Court of Federal Claims (COFC) and the Federal Circuit, have indicated that normal operations would continue for at least two weeks into any government shutdown, but it is unclear what curtailment to operations and impact to filing deadlines would occur beyond that. If and when a shutdown becomes imminent, contractors should closely monitor for notices from the various tribunals on their operational status and any changed deadlines.

While we all feel stuck in a time warp, constantly preparing for potential shutdown after potential shutdown, it is important to prepare for a real shutdown considering the current political climate. If you have any questions about the potential government shutdown, please contact one of the Miller & Chevalier attorneys listed below. 

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Alex L. Sarria, asarria@milchev.com, 202-626-5822

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925

This alert was republished in Law360.

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