Editor’s note: This story was updated on Nov. 7 to reflect new information about budget negotiations.

With the current budget measure set to expire in less than two weeks, concerns of a possible funding lapse are reverberating throughout the federal government, as well as the contracting community that supplies it.

Contractors responsible for carrying out $600 billion worth of government work each year have been here before, and generally know what to expect. That doesn’t make it easier, especially for smaller firms with limited ability to weather a disruption in revenue.

“Generally, if there’s not funding to allow the work to carry forward, the contractor either has to stop working or be at risk of not getting paid if they continue,” said Bob Tompkins, an attorney with Holland & Knight, a law firm in Washington, D.C., that practices government contract law. “Antideficiency Act considerations feed into the risk analysis and are really part of what drives the contractor being at risk because the [law] says that government contracting officers cannot requisition work that they don’t have funds to pay for, essentially.

“They can’t run up a debt on the government’s behalf without obligated funds to back it up,” he said.

Contractors, like federal agencies, are reading the handwriting on the wall and are once again bracing for a shutdown next week. Congress narrowly avoided a shutdown on Sept. 30 when it passed a stopgap measure to keep the government open through Nov. 17, buying lawmakers more time to come to an agreement on a full 2024 budget.

However, even CRs have been known to pause or stop agency hiring, delay contract decisions and add administrative work when contracts must adjust for critical services to continue under incremental funding.

So that leaves contractors and everyone else with very little solid indication about how things will shake out come midnight on Nov 17. The general advice give by attorneys and industry experts is: avoid performing any work at risk, and get in touch with contracting officers often and early.

“We know that in [the] last two long shutdowns, tens of thousands of contractors were furloughed without pay, and unlike federal civilian employees, those contractors do not receive back pay,” said David Berteau, president of the Professional Services Council, a trade association for the government technology and professional services industries. “Or if they do receive back pay from their company, it’s not subject to reimbursement by the government. We know that stop-work orders were applied inconsistently. I think the impact on contractors is something that isn’t often understood even within the government itself.”

In 2019, a five-week shutdown left nearly 800,000 federal workers furloughed or working without pay, and affected an untold number of contractor employees. At the time, it was estimated that 10,000 companies with government contracts were affected, the Washington Post reported.

Prior to that, in 2013, a two-week shutdown disrupted contract delivery at certain agencies, watchdogs concluded in aftermath reports.

Frozen funds

In the case of a shutdown, when agencies cannot by law spend money in advance or in excess of what they’ve been appropriated, companies tied to an agency with frozen funds or closed facilities might receive “stop work” orders that bring operations to a halt.

Contractors are sometimes asked to renew a contract without funding because their work is considered “excepted,” and that could apply to more and more functions as a shutdown drags on, PSC’s Berteau said.

In any case, companies may want to ask what breathing room they do have and what they should do with their workers who are affected by a funding gap, whether that’s putting them on paid leave, furlough or redirecting them to non-billable tasks if they can’t perform their primary duty.

“The contractor has the right to do what it needs to do to maintain that workforce in certain circumstances, but they also have an obligation to try to find other productive uses of people’s’ time, including doing things like training,” Tompkins added.

Larger organizations likely have the financial cushion and resources to repurpose employees during a shutdown, whereas smaller businesses may not be able to absorb losses as easily.

The other potential issue is when employees’ labor is directly focused on one task on one contract, said Franklin Turner, an attorney with McCarter & English.

“I’ve seen companies do a variety of different things to try to help out, but there’s no-one-size-fits all approach,” he said.

Companies also need to be sure that they’re corresponding with the actual contracting officer when seeking agencies’ guidance or written assurances to be made whole post-shutdown.

“The CO is the only one under the regulations that actually has the requisite authority to speak on this issue and tell you what to do,” according to Turner.

In some cases, contracting officers may still work, but their support staff of analysts and administrators are furloughed.

“If the contract analyst isn’t there to do the analysis to support the [CO], that [officer] is likely to postpone that decision,” said Berteau. “I think it would behoove the government to ... make sure that everybody associated with that ability to get stuff done is in place.”

Molly Weisner is a staff reporter for Federal Times where she covers labor, policy and contracting pertaining to the government workforce. She made previous stops at USA Today and McClatchy as a digital producer, and worked at The New York Times as a copy editor. Molly majored in journalism at the University of North Carolina at Chapel Hill.

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