The Fiscal Year End Could Lead to a Government Shutdown

August 30, 2017

With the memory of the 2013 government shutdown still fresh in everyone’s minds, there is serious potential for a reoccurrence as the 2017 fiscal year draws to a close. While for many Americans the prospect of a government shutdown may just mean skipping a trip to their favorite national park, it could lead to a slew of operational and financial issues for the government contracting industry. For those involved in the latter demographic, Alan Chvotkin, executive vice president and counsel at the Professional Services Council (“PSC”), states, “Now is the right time to prepare.”

The timing of this fiscal year’s end adds an extra level of uncertainty. Federal workers may enter the weekend on Friday, September 29, without knowing if they will be returning to work on Monday, October 2. In this case, furloughed employees would be unable to conduct any work or even check emails. Contractors should assume that their contracting officers (“CO”), contracting officer’s representatives (“COR”) and contract administrators may be impacted, and consequently should reach out to their CO’s about the potential effect on their work in the event of a government shutdown.

Another factor contractors should be mindful of is that renewal options often fall around the end of the fiscal year. If the time for exercise of an option occurs while a shutdown is in effect so that the option is not exercised in a timely manner, the contract technically comes to an end. As a result, the option cannot be exercised retroactively unless the contract permits retroactive exercise of an option.

In any event, if a contract is in effect, the contractor will likely be expected to continue work on a contract unless a stop order is issued. If a stop order is issued or if contract employees are unable to work due to factors such as the closing of a federal building, then it is ideal for contractors to account for all expenses related to pausing and restarting work on account of a shutdown to increase chances of reimbursement. Employers should also plan ahead to move employees from possibly paused projects to productive roles. Furloughing workers should be a last resort.

The possibility of a government shutdown isn’t the only factor that government contractors should be preparing themselves for; the government is also facing a debt ceiling crisis. Treasury Secretary Steve Mnuchin recently warned congressional leaders that the government may reach its debt ceiling by September 29. If this is the case, agencies may not have the funds to reimburse invoices. It is advised that contractors prepare and send bills as early as possible towards the end of the fiscal year. Doing so would ensure expedient payment when funds do become available. In the event that an agency does not have the immediate funds to reimburse a contractor, it will make the payment with interest when it can, if the payment is subject to the Prompt Payment Act.

While a government shutdown would certainly be an unnecessary headache for government contractors, there are a few silver linings to take away. As David Berteau, president and CEO of the PSC stated, “Because we actually had a real shutdown in 2013 and came within a short period of time of a shutdown in 2015, there’s more experience inside the federal government today than there was in those cases.” Another important detail for contractors to keep in mind is that there will always be someone appointed at an agency to handle vital contracting issues.

For any concerns in the meantime, please do not hesitate to contact one of our experienced GovCon professionals for assistance.