Government shutdowns are often confusing and difficult to navigate, as federal contracts are paused, projects are left half-finished and government contractors and employees share concerns about pay, furloughs, and timelines. This article addresses common questions and helpful steps for government contractors to take the next time Washington closes its doors.
Government Shutdown Dynamics
The government shuts down when Congress fails to pass, or the president refuses to sign, appropriations bills that fund federal programs and agencies. Appropriations are subject to the Senate filibuster, meaning they require 60 votes.
During the 2025 government shutdown, Republicans held a 53 – 47 majority in the upper chamber and needed at least seven Democratic votes to pass a funding bill. After a 43-day shutdown — the longest in history — the House passed the funding bill by a 222 – 209 vote, and President Donald Trump signed the measure into law.
How Does a Government Shutdown Affect Contracts?
Contracts funded by previous years’ appropriations and performed at a company site rather than a government site tend to be the least impacted by government shutdowns. These projects are already funded, and employees will retain access to operational facilities.
By contrast, incrementally funded contracts may be impacted if funding runs out during the shutdown period. These contracts won’t receive additional funding to continue with further increments of work.
Indefinite Delivery/Indefinite Quantity (IDIQ) contracts continue in effect, but new task orders cannot be placed if they’re funded with annual appropriations. However, task orders funded with multiple-year or no-year appropriations may still be issued.
Finally, options for existing contracts funded with annual appropriations cannot be exercised during the shutdown, which could create issues if there is a deadline for exercising the option.
Do government contractors get paid during a shutdown?
While Congress usually offers back pay to federal employees, receiving payment during a shutdown is not as straightforward for government contractors. Fully funded contracts, or contracts supporting excepted activities, are typically reimbursed for work completed during a shutdown.
Cost recovery is more complex for contracts subject to stop-work orders or nearing their obligated funds limit. Additionally, no new contract obligations can be incurred during a shutdown unless deemed necessary under emergency exceptions.
Who Works During a Government Shutdown?
Government employees designated as “essential” continue working during a government shutdown. Each administration has discretion in defining what’s “essential.” Typically, employees involved in national security and the protection of life and property are deemed essential, including:
- Law Enforcement Officers
- Disaster Assistance Personnel
- Air Traffic Controllers and Transportation Safety Workers
- Coastal and Border Patrol
- Public Health and Medical Workers
Additionally, the United States Postal Service (USPS) typically continues working, since it is not supported by taxpayers.
Social Security offices and those related to Medicare and Medicaid services would likely remain open as well; however, some services may be unavailable. Essential contractor employees supporting these operations would likely continue to work.
All other government activities will need to shut down in an orderly, deliberate fashion. Non-essential government and contractor personnel will be blocked from entering buildings and facilities and are prohibited by law from volunteering services during the shutdown period.
Action Steps for Contractors When a Government Shutdown Occurs
Contractors must understand government fiscal law and various contract clauses to navigate a government shutdown.
Know the Rules
Contracting officers (COs) or program managers cannot promise to pay contractors for work performed when no appropriation covered that work. Government personnel are also prohibited from accepting voluntary services, i.e., those where the provider expects later payment, “except for emergencies involving the safety of human life or the protection of property.”
However, an additional exception applies to certain supplies and services. Specifically, the Department of Defense (DoD) and Department of Homeland Security (DHS) for the Coast Guard may enter contracts in advance of an appropriation for “clothing, subsistence, forage, fuel, quarters, transportation, or medical and hospital supplies.”
Communicate With Your CO
Not all government activities or contracts are supported by appropriations funds. Contact the contracting officers of each of your contracts to determine whether the shutdown will affect your contract. If your contract is affected, ask for guidance on:
- Impacted facilities
- Which personnel are considered essential and should continue working
- Whether access to government records required for performing essential contracts or fixed-price programs will be denied
If appropriate, ask for a written stop-work order for supply and service contracts or a suspension of work order for construction contracts. If either type of order is issued, the contractor is entitled to a price adjustment to compensate for costs incurred due to the order.
If an order stopping work is not issued, immediately inform the CO that the shutdown will financially impact your operations and that you will be requesting recovery of these expenses through exercise of the appropriate clauses in your contracts (i.e., a request for equitable adjustment). You are not waiving your rights to cost recovery and cannot be forced to work “at risk” or volunteer your services.
Mitigate Workforce Costs
Do all you can to mitigate workforce cost impacts for the government and your company. Although some payment offices may be open, you should expect delays in the processing and payment of invoices. Short-term suggestions rather than furloughing employees include:
- Sending them to training
- Directing them to take vacation
- Reassigning them to work on programs exempt from the shutdown or non-government programs
- Assigning them to internal company initiatives that use their technical skills
- Reducing workday hours to minimize costs while maintaining employment
Having employees charge idle time is non-productive, so keep it to a minimum. If the shutdown continues beyond expectations and you expect to potentially furlough or lay off employees in response to a government shutdown, remember to consider federal and state laws in the event of mass layoffs.
Maintain Good Documentation
Immediately establish cost collection points (general ledger accounts, job orders, etc.) to tabulate all costs incurred due to the government shutdown. Being proactive is essential to protect your interests. Make sure to accumulate both direct and indirect costs, as a government shutdown is not a contractual activity and should be recoverable under your current contract vehicles.
Segregate labor costs, accumulate supplier/subcontractor costs and save all correspondence. There is no such thing as too much documentation. You may want to review records dating back to the beginning of the government’s fiscal year to identify potential impacts.
Keep in mind that stop-work and suspension of work orders are contractual acts that entitle a contractor to price adjustments. However, recovery is only possible if you can demonstrate attempts to mitigate the costs incurred and provide extensive documentation. If you’re unable to recover increased costs caused by a shutdown, you should be entitled to a schedule extension based on an excusable delay.
Prioritize Cash Flow Planning
A government shutdown creates potential cash flow issues for government contractors that must be dealt with promptly. Contractors should assume a delay in released payments after the shutdown ends. While the duration of a shutdown can be unpredictable, it is probably safe to plan for the cash impact to last for at least 30 days.
Careful planning, overcommunication and thorough documentation are the best courses of action in this situation.
Your Guide Forward
Should you find yourself needing answers specific to your situation or help resolving costs associated with a shutdown, Cherry Bekaert’s Government Contracting team is here to help you navigate the shutdown impacts.
