Government shutdown threatens FY24 budget approval

What every government contractor should know if a federal shutdown occurs

By Skyler Handl, Corporate Counsel Public Sector, immixGroup

In recent years, talk of a government shutdown has become common. But what is a government shutdown, how does it impact the public sector industry, and what actions can you take to prepare for it?

A government shutdown occurs when dollars have not been appropriated by Congress to fund government agencies and functions. Consider the Antideficiency Act (ADA), which prohibits government agencies from obligating (spending) funds that have not been appropriated, i.e., authorized by Congress. Developing a budget is a complex political process and a failure to properly plan, coupled with an intransigent Congress can create delays in funding. We often see a continuing resolution (CR) passed as a temporary fix if a formal budget agreement is not reached. A CR caps spending at the prior year’s budget for an agreed-upon period of time. The CR allows the federal government to operate while a comprehensive budget can be passed.

When Congress fails to pass a budget or put in place a CR, government agencies run out of funding. This results in everything from government employees being furloughed to contract awards and payments being delayed. Daily activities generally come to a halt, so as a contractor you can expect your pipeline discussions, active implementation projects, and other engagements with government customers to be postponed. There are some exceptions for mission-essential offices, including those supporting national security, which will be communicated on a case-by-case basis from the contracting officer to their supply chain.

For contractors who have already-funded contracts, a shutdown often delays payment. Contractors may receive ADA exception letters stating that funds have been obligated, but these do not guarantee timely payment. Typically, these orders will be processed two weeks after the government reopens from a shutdown. Contractors should confirm government customers’ ability to accept delivery and process invoices for payment. With many government employees and functions on furlough, the correct customer point of contact may not be available to accept delivery or process payment requests.

During a government shutdown, and shortly after it concludes, it is important to maintain open communication. Prime contractors, resellers and system integrators need to be in contact with their contracting officers to navigate stop-work orders, timing of payment, and delivery or any other challenges that arise. Subcontractors, suppliers, and OEMs should hold regular check-ins with their prime contractors and direct customers to receive flow down and collaborate on forthcoming actions to support the government customer.

With the threat of a potential shutdown, review your forecast and adjust as appropriate, communicate with critical government customers where their support will be needed to continue performance on open contracts, and create a communication plan with your customers and suppliers to quickly share information as it becomes available from contracting officers. Lastly, remain calm. A review of prior government shutdowns indicates they typically last only a couple of weeks.  The longest government shutdown in history was between December 2018 and January 2019, lasting a total of 34 days.

Skyler Handl is legal counsel for immixGroup, the public sector business of Arrow Electronics. Delivering mission driven results through innovative technology solutions for public sector IT. Visit http://www.immixgroup.com/ for more information.

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