Government Shutdown Puts Added Burdens on Federal Contractors

It has officially been two weeks since the government shut down, and federal contractors are feeling it.

The ongoing shutdown of the federal government, the result of a lapse of appropriations to keep the lights on in the federal government, has not relieved government contractors of their obligations to continue performance of their contracts. Despite the uncertainty of payment during the shutdown, contractors generally must continue work. Most contracting agencies are lightly staffed, making timely direction less likely. Nevertheless, contractors are obligated to continue performance. Start tracking shutdown impacts now to maximize the chances of recovery later.

Most Contracts Continue

Contracts funded before Oct. 1, 2025, are not likely to experience delays or slowdowns as a direct result of a lack of funds to pay for the work; agencies should already have the appropriated funds to pay for the work. The upshot is that a contractor should expect to continue performance during the shutdown unless directed otherwise by the contracting officer. That does not mean, however, that contractors will be paid on time. If history is any indicator, furloughs of agency staff will slow processing of contract payments. It is critically important that contractors not assume they are entitled to stop work if contract payments slow or stop. Only in rare cases does a lack of payment entitle a contractor to walk off the job. At this stage in the shutdown, it is unlikely that any such case has arisen.

Contracts that were not funded before Oct. 1, 2025, will be dormant for the simple reason that the government does not have money appropriated to pay its obligations. More importantly for most contractors, during the shutdown, the government will not be able to exercise options, issue contract modifications, or award task orders. This will become a more pressing problem the longer the shutdown stretches.

Communicate With the Contracting Officer

As with most undertakings, communication is the key to success. Contractors should keep in contact with their contracting officers. By now, many contracting officers have been furloughed, but they should have provided contractors with direction on how to proceed. Unless a contracting officer issues a stop-work order or suspends the contract, a contractor should assume its performance obligations are alive and well. Most federal agencies have published shutdown plans, which can be a useful source of information in addition to the contracting staff.

Even when required to continue performance, contractors may face other hurdles. Access to federal facilities may be disrupted or impossible. Required direction, review, and approval may be difficult or impossible to obtain. Contractors should anticipate performance delays outside of their control.

Mitigate Damages

Among the most difficult decisions a contractor faces during a shutdown is how to treat employees unable to work on a government contract to which they were assigned. Contractors should take reasonable steps to reassign those employees to other projects if possible. Paid leave, furloughs, or layoffs may also become necessary. These steps are important because the government generally will not pay for employees kept waiting in the wings during a shutdown. Contractors should consider their obligations under federal and state employment laws, as well as any contracts with the employees themselves and collective bargaining agreements.

Although a less fraught consideration, demobilization or reassignment of equipment may also become necessary in cases where access to work sites has not been restricted. This may be complicated where equipment is rented or leased, or if it is specialized equipment that is difficult to find, because once the shutdown ends, the government will expect performance to resume at full strength—reassigned equipment that cannot be immediately remobilized may cause additional delays. There are no perfect answers to these situations, and contractors should apply their best judgment to the known facts when deciding how to proceed.

Plan Now for Requests for Equitable Adjustment

Contractors should start planning now to submit requests for equitable adjustment when the government reopens. Because the shutdown is an unforeseeable act of the government and not the contractor’s fault, contractors will be entitled to schedule adjustments but generally not compensable delays. Those schedule adjustments will stave off the threat of liquidated damages. Nevertheless, contractors should track any costs resulting from shutdown delays. Because the law abhors absolutes, there may be circumstances that entitle a contractor to compensable delay time.

Contractors will also likely experience direct costs as a result of the shutdown. Tracking those added costs now, rather than trying to reconstruct them later, will improve a contractor’s chances of recovery. Costs may result from actual changes (e.g., directives from the contracting officer) or constructive changes (e.g., the government’s failure to provide direction because staff were furloughed). Using different cost codes to track these added costs will help segregate the costs and simplify documentation when the time comes to prove up the amount of an REA.

Document, Document, Document

Among the most valuable steps a contractor can take during the shutdown (and any other time) is simple: document, document, document. Document delays regularly. Document all costs incurred during the shutdown, whether they appear at the moment to be recoverable, or even necessarily attributable to the shutdown. Document communications with the government. Of particular importance, do not conduct business with the government by text and telephone. If that becomes unavoidable, follow up with an email reiterating the content of the text or phone call. The minor effort will pay for itself later in the form of a detailed record in support of an REA.

Statutory Appeal Deadlines Remain in Effect

Contractors with impending deadlines to appeal a contracting officer’s final decision on a certified claim must still file a notice of appeal with the boards of contract appeals, or a complaint for review by the Court of Federal Claims, within the statutory deadlines. For appeals to the Armed Services Board of Contract Appeals or the Civilian Board of Contract Appeals, that deadline is 90 days from receipt of the CO’s final decision. For suits at the Court of Federal Claims, the deadline is 12 months from receipt of the CO’s final decision. Most other litigation where the government is a party, and especially litigation regarding contract claims, has been stayed, but the statutory deadlines for appealing a contracting officer’s final decision will not be waived or tolled.

Make Best Efforts

Government shutdowns pile enormous burdens and costs on many sectors of the economy, and contractors shoulder a significant portion of those burdens. The normal risks and costs of contracting with the government increase at the same time that money and direction from the contracting staff decrease, all while the contractors must carry on. The road is likely to be bumpy, especially if the shutdown continues for more than a couple of weeks, which seems a near certainty at this point. Contractors should make their best efforts to continue performance, mitigate damages, and track the cost and schedule impacts of the shutdown. The information given here is general and should not be relied on as legal advice. A lawyer’s favorite answer is, “It depends.” And so it is here. When the inevitable questions of how to proceed arise, contact qualified legal counsel.