A federal government shutdown sends ripples across the entire economy. While news coverage often focuses on furloughed federal employees, thousands of private businesses that contract with the government face an immediate and severe financial crisis. Invoices go unpaid, projects stall, and revenue streams dry up overnight. When your business depends on government payments, a political deadlock in Washington can feel like a direct threat to your survival.
The current stalemate between the House and Senate over the federal budget has done just that, leaving countless business owners wondering about their options. If the government owes you money, what can you do? This situation is complex and frustrating, but you are not without recourse.
This post will explain how a government shutdown impacts private contractors and what steps you can take to navigate the financial uncertainty. We will cover potential legal avenues, strategies to lessen the damage, and why expert legal advice is critical during these times.
How a Shutdown Halts Payments to Your Business
When Congress fails to pass appropriations bills to fund government operations, federal agencies are forced to cease all non-essential functions. This process is governed by a law called the Antideficiency Act, which prohibits federal agencies from spending money they don’t have.
For government contractors, the consequences are direct:
- Frozen Payments: Agencies cannot process invoices or make payments for services already rendered. Your accounts receivable from the government effectively become frozen assets.
- “Stop-Work” Orders: For ongoing projects, contracting officers may issue a “stop-work” order. This formally suspends all work on the contract until funding is restored. You cannot continue working or billing for your time.
- Inaccessible Federal Staff: The government employees you normally work with—contracting officers, project managers, and payment processors—are likely furloughed. This means you have no one to contact for updates or assistance.
This sudden stop in cash flow can be devastating, especially for small businesses that rely on timely payments to cover payroll, rent, and other operational expenses.
Understanding Your Contract: The First Line of Defense
Before exploring any other options, your first step is to carefully review your government contract. These documents are not standard business agreements; they contain specific clauses that govern situations like a lapse in appropriations. Look for a few key provisions.
The “Availability of Funds” Clause (FAR 52.232-18)
Most federal contracts include this clause. It states that the government’s obligation to pay is contingent upon the availability of appropriated funds. Essentially, it protects the government by clarifying that if Congress doesn’t provide the money, the agency can’t pay you. While this clause limits your ability to sue for immediate payment during a shutdown, it is a crucial part of understanding the legal framework.
The “Stop-Work Order” Clause (FAR 52.242-15)
If you received a stop-work order, this clause outlines the procedures and your rights. It typically allows the contractor to request an “equitable adjustment” to the contract terms after work resumes. This is your primary mechanism for seeking compensation for the costs incurred due to the shutdown-related work stoppage.
The “Changes” Clause
This clause allows the government to make changes to the contract’s scope. A prolonged delay caused by a shutdown could be interpreted as a constructive change to the contract, potentially opening another avenue for seeking an equitable adjustment.
Taking Action: Steps to Mitigate Your Losses
While you can’t force Congress to pass a budget, you can take proactive steps to protect your business and prepare for the aftermath.
1. Document Everything Meticulously
From the moment the shutdown begins, start a detailed record of every cost you incur because of the disruption. This is not just about lost revenue; it’s about the specific, quantifiable expenses. Track items such as:
- Costs of idling facilities and equipment.
- Salaries for essential employees you must retain.
- Unavoidable overhead and administrative expenses.
- Costs associated with demobilizing and later remobilizing your workforce.
This documentation will be the foundation of any claim for an equitable adjustment you make later. Keep all receipts, timesheets, and communications organized.
2. Communicate Formally with Your Contracting Officer
Even if your point of contact is furloughed, send formal written communications. If you receive a stop-work order, acknowledge it in writing. If you don’t receive a stop-work order but are unable to proceed because of the shutdown, write to your contracting officer to document the situation and ask for direction. This creates a paper trail that proves you acted responsibly and sought guidance.
3. Explore Your Financing Options
With payments frozen, maintaining cash flow is your top priority. Look into short-term financing options to bridge the gap. This could include:
- A line of credit from your bank.
- Invoice factoring for your non-government receivables.
- Small Business Administration (SBA) loan programs that may be available.
Contacting your bank early is crucial. Explain the situation and provide them with copies of your government contracts and outstanding invoices.
Legal Recourse: Seeking Compensation After the Shutdown
Once funding is restored and the government reopens, you can begin the process of seeking compensation. Your primary tool is a Request for Equitable Adjustment (REA).
An REA is not a lawsuit; it’s a formal claim submitted to your contracting officer asking to modify the contract price to compensate you for the costs incurred during the shutdown-related work stoppage. Your meticulously gathered documentation will be essential here. The goal is to show how the government-mandated delay increased your cost of performance.
If the contracting officer denies your REA or you cannot agree on a fair amount, your next step is to file a formal claim under the Contract Disputes Act. This elevates the issue and sets a timeline for the contracting officer to issue a final decision. If that decision is still unfavorable, you then have the right to appeal to the appropriate Board of Contract Appeals or file a lawsuit in the U.S. Court of Federal Claims.
Why You Need a Legal Professional
Navigating the world of government contracts, especially during a crisis like a shutdown, is incredibly complex. The Federal Acquisition Regulation (FAR) is a dense and intricate set of rules. Trying to handle this alone while managing a stressed business is a recipe for missed opportunities and costly mistakes.
An experienced government contracts attorney is an invaluable partner who can:
- Analyze Your Contract: They can quickly interpret the specific clauses in your contract and explain your rights and obligations in clear terms.
- Maximize Your Claim: A lawyer knows exactly what costs are recoverable in an REA and how to present them effectively to the contracting officer. They ensure your documentation is robust and your claim is persuasive.
- Handle All Negotiations: An attorney can manage all communications and negotiations with the government, freeing you to focus on restarting your operations.
- Navigate the Appeals Process: Should your claim be denied, your lawyer will be prepared to handle the formal dispute process, from filing a certified claim to litigating the case in court if necessary.
A government shutdown is a political problem that creates very real business consequences. While you can’t control the actions of Congress, you can control how you respond. By understanding your contract, documenting your losses, and partnering with a legal expert, you can protect your business and fight for the compensation you are owed.
What to discuss your situation with a Business Attorney? Set up a time now and let’s talk.
Law 4 Small Business (L4SB). A Slingshot company. A little law now can save a lot later.
