As we approach September 30, 2025, the end of the Federal Fiscal Year, it appears that, yet again, a government shutdown is imminent and perhaps even unavoidable given the challenges coming out of Washington, D.C., and the federal government. As such, we are republishing our March 11, 2025, client alert (an update to our September 2023 alert) on what to do should a shutdown occur. We urge you to review these suggestions and share them with your project/contract personnel so that you have the necessary procedures and documentation in place if needed. While we certainly hope that this situation will be avoided, all indications are that it very well may not. Should you have questions or concerns, please feel free to contact our government contracts attorneys.

With the September 30th end of the federal government’s fiscal year, the government (namely Congress) is required to have an approved budget in place for its next fiscal year. Unfortunately, it appears that this may not happen. Absent passing a Continuing Resolution (CR) (which, in effect, maintains the status quo but allows the government to continue to operate), a shutdown will occur. As has been reported broadly, at least as of the time of this article being published, no such budget and no temporary continuing budget resolution have been passed by a logjammed Congress. It is possible that a budget or CR will pass, but most indications are that this is not likely. Furthermore, the executive branch has stated that should a budget not be passed, mass layoffs of government personnel will occur. The next several days will tell the proverbial tale.

So, what does this mean to government contractors? It is not the end of your contract (unlike other actions we have seen taken by DOGE and the president in areas such as leases and USAID agreements), but it will likely impact your efforts. There are some critical steps that you should take now and over the coming weeks (depending upon how long a shutdown lasts) to preserve and protect your rights and make a proper record.

SOME INITIAL QUESTIONS

Initially, and hopefully, you should have heard from your agency contracting personnel by now about the status of your contract. Is it protected, funded, and continuing during a shutdown? If you have not heard anything, you need to confirm with the agency/contracting personnel you are performing work for whether there is money appropriated and available for the work to continue unabated, and what the agency’s plan is in this regard. Tied to this are questions such as:

1. Will the site be accessible? Will security personnel and access be in place, and will your team/employees and subcontractors be on site?
2. How will communications and directions with the agency be carried out?
3. How will direction from the agency occur during a shutdown?
4. Who are the optional personnel to contact should layoffs or firings occur?

AGENCY CONTINGENCY PLANS

Many executive agencies have contingency plans in place for the possibility of a government shutdown. Review those plans (which, if prepared, should be available online) to determine if and how your projects are affected. Key to these plans and the overall impacts are not only how the relevant agency and contracting office will (or will not) operate during the shutdown, but more critically how that will impact your teams and projects.

IMPACTS & NOTICE

Shutdowns inevitably have significant impacts on contractors. Schedules and costs can be negatively impacted. Increased costs for storing materials and equipment, delivery delays, processing of payment applications, and receipt of payments are often delayed, and the contractor can rapidly become the “bank” having to advance monies to keep things progressing. Likewise, the need to carry payroll to keep personnel available can also occur.

Documenting, preferably using separate, shutdown-specific cost codes, and informing the contracting officer now that the shutdown will (or likely will) have an impact on schedule and costs is key. Do not wait for that notice. Even if done as a place holder, with a follow-up or periodic updates to the government to allow you to make a record are critical. Notice and impact tracking is key, along with back-up support when the time to seek cost and schedule adjustments occurs.

CONTRACT CLAUSES

Tied to this is the need to review and understand your prime contract and FAR clauses. The last big impact on government contracting was COVID-19 (and before that, the 2019 shutdown). The difference between the two is that COVID was arguably a force majeure issue, meaning that it was not the fault of anyone (an act of God), and, for the most part, recovery was limited to a non-compensable time extension. In contrast, shutdowns are government-caused, and recovery of time and cost is a real possibility. Recognizing and understanding that even if your project is not shut down, you can still be impacted negatively is critical, as is identifying what those impacts may be.

Much of the work is performed by subcontractors. Keeping them in the loop and on notice of events and impacts (and ensuring that the subcontractors supply you with the necessary notices and support to pass through any resulting damages and relief requests) is equally important. Making sure you are also aware of the relevant terms of your subcontracts (items such as no damage for delay, disputes, claims, changes, notice, and the like) and following those requirements can play a key role in not only protecting your team but also the project/contract from any resulting claims or litigation that may ensue. Making sure that the subcontractors and suppliers/vendors know that this is not conduct of your doing and that they should track their costs, provide any requisite notices, and that the prime contractor will, if appropriate, pass such costs/claims/requests for equitable adjustment through to the government may be a good additional step.

PERSONNEL ISSUES

Equally important is understanding what your personnel need and what personnel decisions, such as reductions in force or furloughs may be needed are critical. Following applicable labor and employment laws and providing any necessary notices plays a critical role in mitigating and reducing effects on you and the project.

CONCLUSION

It is almost everybody’s hope that another shutdown is avoided. That being said, given Congress’s current communication problems and extensive infighting, as well as the executive

branch’s continued efforts to both downsize government and also use a hammer instead of a scalpel, as of now, it appears highly possible that a shutdown is a real likelihood. In contrast, full and proper communication is critical to government contractors to control risk and maximize their ability to recover any resulting losses. The key to all of this is notice and communication. Communicating with the agency and your employees and understanding what each needs and expects will help your efforts to mitigate impacts to your work. That communication should include notices, reservations of rights, and verification of oral discussions.