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Many of us lived through the federal government shutdowns in 1995, 1996, and 2013. That shadow may loom over us again in the next few weeks. What should a contractor do to prepare for a shutdown? At a minimum, you should at least have some sort of plan, because things can happen quickly and the shutdown can drag on. What sort of plan? It depends on your contracts.
If your work involves essential services , a contracting officer should advise you of that on a contract by contract basis. Strengthen and maintain your lines of communication with your contracting officers as much as possible. If you deliver essential services, then your work won’t be disrupted as much as some others. However, you may need to work around absent government employees or a slow-down in government direction.
If you do not deliver essential services, your contracting officers will issue you stop work orders. These stop-work orders will require that you stop all work on the named contracts. At that point, it is up to you to decide whether you keep your employees on overhead (with pay), direct their work to some of your other federal or commercial contracts (with pay) or to lay off affected employees. You can encourage employees to take vacation time or sick leave. However, there is no guarantee that you can ever recover any of the money paid out by putting employees on overhead.
Under state law, which governs your employees, there is no status called “furloughed.” They are either employed (with pay) or not employed (and not paid). So, if you furlough any of your employees and they are not working for pay, they will be eligible for state unemployment compensation (not to mention payout of accrued vacation). In other words, if you furlough them, you have terminated their employment. You may rehire them later, but you can’t protect their employment status without paying them.
Once you resume work on suspended contracts, you may have a claim for some of the costs you incur in dealing with your employees. It is important to segregate and track these internal costs, even on a fixed priced contract. Some of the costs may be compensable through a claim once work resumes.
Finally, you should expect to have some disruption in your revenue stream. This could impact you most during the shutdown period, but it could impact you for many weeks afterward. Your plan should include some sort of back up revenue from loans or lines of credit and will certainly shape your plan for dealing with your employees during the shutdown period.
For more information, please contact one of our Government Contracts specialists: