What You Need to Know Now: Preparing for a Federal Government Shutdown

March 2011Articles AGC of America Federal Contractor Report

The continuing resolution currently funding government operations, including many federal contracts, will expire on March 4, 2011. Even with a two week extension, a failure by lawmakers to pass another resolution or reach an agreement on funding for the remainder of the fiscal year will result in a federal government shutdown. The possibility of a shutdown has left contractors wondering how or even if they can continue to perform their federal contracts.

Funding gaps and corresponding government shutdowns occur when Congress and the President fail to enact regular appropriations bills at the beginning of the fiscal year or fail to come to an agreement on stop-gap funding through a continuing resolution. The last notable shutdown occurred in December 1995 and was not resolved until January 6, 1996. During the ’95-‘96 shutdown, nearly $3.7 Billion in federal contracts in the Washington, D.C. area alone were adversely affected by the funding lapse. The impending shutdown will likely have an even larger impact as the government is now far more reliant upon contractors.

Construction contracts awarded on a fixed-price basis will be substantially unaffected by the shutdown. However, for most cost-type contracts, time and materials contracts, IDIQ contracts, and those contracts that have yet to be awarded, the shutdown will likely suspend operations completely. Therefore, it is important for contractors to prepare for the consequences of a government shutdown.