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Unfortunately, it’s been less than two years since we last had to give this advice (see: https://restonlaw.com/what-to-do-in-case-of-a-government-shutdown/). Here is that advice again, updated to reflect the fact that this time we actually do have a shutdown:
Many of us lived through the federal government shutdowns in 1995, 1996, and 2013 (not to mention near shutdowns such as in 2017). That shadow is once again looming over us, and it’s impossible to know for how long. What should a contractor do during a shutdown? At a minimum, you should at least have some sort of plan, because the shutdown can drag on. What sort of plan? It depends on your contracts.
If your work involves essential services, a contracting officer should have advised you of that on a contract by contract basis. If you deliver essential services, then your work shouldn’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 during the shutdown.
If you do not deliver essential services, your contracting officers should have issued you stop work orders. These stop-work orders require that you stop all work on the named contracts. At this 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. If you have not done so already, reach out to your banking relationships and make sure you have loans or lines of credit in place that can shape your plan for dealing with your employees during the shutdown period.
For more information, please contact one of our Government Contracts specialists: