Washington, DC, is once again facing the possibility of a government shutdown, now with even more uncertainty about what that might mean for federal agencies and contractors. While last minute legislation is possible to avoid a lapse in funding and keep the government open, any continuing resolution (CR) may have a short duration. The most recent CR, passed in December 2024, extended appropriations through March 14, 2025. Moreover, the passage of the 2024 National Defense Authorization Act (NDAA) on December 23 did nothing to appropriate funds for the Department of Defense (DoD), it simply authorized the use of them when appropriated. With another shutdown looming, contractors should be mindful of the potential impact on their contracts. Here are a few steps to keep in mind when preparing for the next shutdown. 

1. Be Familiar with Fiscal Law Principles & 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 the 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. Agency Contingency Plans for a Potential Lapse in Appropriations Have Disappeared 

In advance of a potential shutdown, agencies often issue a contingency plan to detail operations during a lapse in appropriations. However, no agencies have disclosed plans yet and the White House Office of Management and Budget (OMB) removed guidance issued during the Biden administration from its website in the week leading up to the potential shutdown. The day before the funding deadline, OMB's webpage for agency contingency plans led to a "404 page not found" error message. During a shutdown, presidents have broad discretion to decide which departments to keep open and whom to furlough. While past administrations' published contingency plans stuck to precedent and maintained only the workforce necessary to ensure national security and basic government continuity, it is unclear how the Trump administration will approach a shutdown. In light of the current reduction in force effort, a robust government shutdown is not off the table. 

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. Nonetheless, the shutdown can still impact fully funded contracts. 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. 

Pertinent questions to consider asking include: 

1. Who will be the contractual point of contact during the showdown? 
2. What relevant guidance (i.e., contingency plan, etc.) is the agency following? 
3. Will any work under contract be deemed essential? 
4. 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, so 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:

• All incurred costs related to winding down performance are properly documented, as this will increase the chance these costs can later be recovered.
• How to handle furloughed employees. Again, early and often communication is crucial. Contractors should be cognizant of their relevant legal obligations, such as 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. 
• All key stakeholders — contracts, operations, human resources, legal, etc. — must be adequately consulted and 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 previously discussed in detail, the Government Accountability Office (GAO) ceased operations during the government shutdown of 2013, extending 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 and the Federal Circuit, have not yet indicated how they will operate if the government shuts down in March. Contractors should closely monitor for notices from the various tribunals on their operational status and any changed deadlines.

Uncertainty about federal spending is an aspect of the new political climate not likely to resolve itself in the short term, but preparation for a government shutdown can help take some of the surprise out of the news cycle and give contractors a plan ready to put into action.

For more information, please contact:

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

Elissa B. Harwood, eharwood@milchev.com, 202-626-5890

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

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

Ashley Powers, apowers@milchev.com, 202-626-5564

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

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

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