Government Shutdowns and the Effects on Federal Contractors
As October 1st approaches, Senate leaders are hard at work trying to create a bill that will fund Federal agencies in the new fiscal year and avoid a government shutdown. In addition to approving the Presidential Budget or passing a Continuing Resolution (“CR”), Congress must also pass legislation to allow additional Federal borrowing, ensuring that our nation is not faced with an unprecedented debt default near the second-half of October.
On Friday, September 20th, the GOP House passed a CR that would increase the debt limit through 2014 and give the government funding through mid-December 2013; however, the CR also called to eliminate funding of the Affordable Care Act for a year, which will make it increasingly difficult to get the CR past a Democratic Senate. Because of this, Congress is currently in a stalemate with time running out to determine a bi-partisan solution.
In order for a budget to be passed, both the House and the Senate must approve 12 separate appropriations bills by the last day of the government fiscal year, September 30th. Although Congress has been unable to meet this statutory deadline for the past 17 years, they have previously been able to pass a few of the 12 bills necessary and have not come this close to a full government shutdown for the last 20 years(1).
For government contractors, a government shutdown is likely to be a significant inconvenience at best. With inaccessible government facilities and employees, there will likely be no new contract awards or additional funding modifications to existing contracts, significantly delayed payments, and unexercised and deferred contract options. Even contractors on exempt contracts could be adversely affected by a government shutdown without the proper planning. Stock prices of public government contractors and existing contract work may also feel the burden if the shutdown is prolonged for an extended period of time.
The government is already preparing for a potential shutdown, urging contractors and agencies alike to determine key employees essential to operations and develop contingency plans prior to October 1st. Best case scenario, these plans will not be needed and Congress will be able to iron out a CR within the next few days, keeping the contract dollars flowing and the government open for business.
(1) The last government shutdown was from mid-December 1995 to early January 1996 when the U.S. government shut down for 21 days.