Glen Burnie, MD (PressExposure) April 04, 2011 -- If the federal government shuts down due to a budget impasse, companies with government contracts should take steps to protect themselves and their federal projects before and during a shutdown.
"If Congress and the president fail to pass a continuing resolution or a budget and the federal government shuts down, everyone working on a government contract faces a lot of uncertainty," said Veronica Eyenga, president and CEO of VBP OutSourcing, Inc. "There are things government contractors should do before and during a shutdown to protect themselves and their projects."
Eyenga, whose firm specializes in accounting and marketing for firms doing business with the federal government, noted "there is no 'one size fits all' answer. It really depends upon the contract, whether the agency and project involved are deemed essential, and whether the agency undergoes a 'hard' or 'soft' shutdown."
Compounding the uncertainty, Eyenga said, "is that, according to emails reported by USA Today, the Office of Management and Budget (OMB) has instructed agencies not to discuss the possible consequences of a shutdown."
In a government shutdown, most agencies would employ a skeletal crew of essential employees, primarily those that protect life or federal property. In a soft shutdown, federal employees would come to work but would be barred from doing anything "productive." In a hard shutdown, non-essential employees would be barred from federal buildings. Presumably, contractors whose work brings them into federal buildings would be barred as well. Even companies making deliveries to federal buildings would be locked out.
According to Smart Contracting, contractors whose work is deemed non-essential should receive a Notice of Scope of Work Affected, Timetable and Permissible Activities from their Contracting Officer. In the last government shutdown, Bloomberg Government noted, contractors providing health and defense services were termed essential, while many information technology contractors were not. Contractors have been paid upfront will probably be allowed to continue to work. "Those who haven't been paid upfront, or received a notice from their CO that work should continue, may not be reimbursed if they continue to work in anticipation of being paid later," Eyenga added. "In the 1995 government shutdown, which lasted 21 days, some contractors were legally prohibited from being reimbursed. We're advising our clients not to gamble on reimbursement unless they're told beforehand in writing that they'll be paid for work performed during a shutdown. And volunteering isn't an option: The Anti-Deficiency Act (31 U.S.C. §1342) prohibits agencies from accepting volunteer services to replace federal employees.."
Another wrinkle, according to Eyenga, involves subcontractors. Because the government's stop work order only applies to prime contractors, prime and subcontractors should review their contracts for flow sdowns of limitations of funds clauses. No flow down could mean that subcontractors have a payment claim against the prime contractor, even if work is halted.
"Some of the costs of shutting down and restarting projects may be recoverable by contractors if those costs are documented," Eyenga said. "But it's imperative to talk to the CO both before and after a shutdown. Also, Congress may or may not allow recovery of back pay or consequential damages in the event of a shutdown and restart.
"Before and during a shutdown, talk to the CO. That communication is critical. Look internally as well, to see how employees working on government contracts can be reassigned if their projects are halted by a shutdown. This might be a great time to send them for mandatory training, encourage them to take paid leave or vacation, or tackle some internal projects you haven't had the time or personnel to complete.
"The other critical task is to look at your cash flow, and prepare for the contingency that federal payments - even those you've already invoiced - might be delayed or reduced. Do everything you can to insulate yourself from all of the possibilities of a government shutdown."
For more information, visit http://www.vbpoutsourcing.com or call 410-590-5000.