There have been 21 federal government shutdowns in the last 5 decades with the most recent in Dec 2018 – Jan 2019 (34 days), but what does a government shut down mean for government contractors?

* Although this article discusses the impacts of a Federal Government Shutdown, it contains basic business information when working with the government that is appropriate and helpful in multiple situations. And even if a shutdown does not happen this year, it’s important to know this is a factor that can occur in the future and to plan in case it happens. 

Who is Impacted?

The federal government civil service civilian employees, the military, the contractors who have federal government contracts are all impacted.  Contractors are impacted because whether they are required to work or to stop work – they will not be paid during a shutdown. This is because the federal workers who receive the invoices and process payments are not at work during this period. A government shutdown has ripple effects that impact everyone in the community. 

How will this affect your business?

Contractors will receive written direction from their agency’s Contracting Officer or Contracting Officer Representative on how to proceed with any action on their contract.  They may receive a Stop Work Notice directing them not to report to work or they may receive notice that they will need to be working because they have been deemed to be essential to the government.  Regardless, the contractors will not be paid. 

Every contractor should watch for written direction from their Contracting Officer and ask questions immediately as government personnel may not be available after the shutdown starts.  Pull out your contract and read it.  You may also have to provide notification to your subcontractors as the government does not communicate with them. 

This is an important time to review your business planning and consider not having all your business with one client or one type of client.  Think about diversification that includes multiple types of government contracting so that if one client is shut down you have others providing cash flow.  And when a shutdown ends, the relief is not immediate as it takes time for the government to catch up and reach normal processing timeframes again.

Document, document, document!

It is important to document your costs during the shutdown.  You may be required to continue work without payment during the shutdown, minimize work with no payment, or stop work completely. You will need to prepare a request for equitable adjustment after the government reopens. 

Your employees may not be able to continue working for you without a paycheck so consequently you may lose some of your best people.  These are the types of actions that should be documented, including all costs to recruit new employees, training, etc.  If you find yourself in this situation, your APEX Counselor will be able to navigate what to do and assist you.

Steps for preparedness

Take action early by completing these to do items:

1. Review your existing contracts with federal agencies to understand your obligations, particularly regarding any shutdown clauses. Determine how critical each contract is to your business operations.

2.   Communicate with your contracting officers and point of contact within the relevant federal agencies. Seek clarification on the impact of a potential shutdown on your specific contracts, including any guidance on how to proceed.

3.   Be sure your business has adequate financial reserves to weather a potential shutdown. This may involve setting aside funds, securing lines of credit, or exploring financial assistance options.

4.  Will a shutdown impact your supply chain? Identify critical suppliers and work with them to develop contingency plans in case of delays or disruptions.

5.  Consider the impact on your workforce. Determine which employees are essential for contract performance and which can be furloughed or assigned to other tasks during a shutdown.

6.  Maintain thorough records of all communication with government agencies, including emails, letters, and phone calls. Document any changes in contract terms, instructions, or directives provided by government representatives.

7.  Create a comprehensive shutdown plan that outlines the steps you will take if a shutdown occurs. Include details about how you will prioritize contracts, manage finances, and communicate with employees and subcontractors.

8.  Over the long term, consider diversifying your client base to reduce reliance on federal contracts. This can help stabilize your revenue during periods of fluctuation.

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Your APEX Counselors are here to help – we can assist with planning for the future or guiding you if a shutdown occurs. Reach out to your Norcal APEX Accelerator counselor for assistance or apply for services today!

If you have more questions, please contact us at info@norcalptac.org or 707.267.7561

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