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Government Shutdown? As a Contractor, Some Thoughts and Issues To Consider Now!

Government Shutdown? What can/should a contractor do?

A potential government shutdown won't just impact employees collecting government paychecks, but could also severely impact hundreds of thousands of contractors and the companies employing them to provide goods and services to federal agencies.

Federal funding for government operations expires March 4, leaving President Obama and lawmakers less than two weeks to decide whether to pass a short-term funding extension, a measure that funds the government for the rest of fiscal 2011, or to partially shut down government operations as negotiations continue.

Though federal employees earned retroactive pay for time lost during previous shutdowns, many contractors didn't after the 1995 and 1996 shutdowns -- and Congress has never passed legislation compensating contracting firms for time and work missed, because the government has never relied on contracting as it does now.

With that in mind, representatives from hundreds of contracting firms met Wednesday morning at an event hosted by the Professional Services Council, a trade association for mid-sized firms working with government agencies.

"You will find there is a maze" of issues to consider, said John F. Cooney, a partner at Venable LLP who led Bill Clinton's administration through the mechanics of the previous government work stoppages. For example, agencies may determine that certain contractors working on a government project can report for work because they're conducting "essential" government tasks, but that other colleagues on the project have to stay home. Contracting firms might need to temporarily reassign furloughed workers or even suggest they go on paid vacation to avoid sitting on their hands during the impasse.

Alan Chvotkin, PSC's executive vice president and general counsel, presented a series of questions contractors need to start answering this week to properly prepare for any shutdown in the coming days. As you'll see below, the questions Chvotkin posed are complex and lack easy answers:

Do you know where your employees are?
• Might be different if you have workers at a government facility. They may be denied access during a shutdown. "You still need to know who's where and how to get in touch with them," Chvotkin said.
• Are people on official travel? "You'll have to tell them to get on the next flight back," Chvotkin said. Or, "Do you tell them to stay in the Bahamas a few extra days?" because it costs less for them to stay put. "There are no pure answers here."

• Employees on leave, vacation or sick leave should continue in that status.

What do you do with your employees in the meantime?
• Try to minimize the government's liability and your own by considering work reassignments. It may be possible to re-task employees to a related project that's not affected. There may be other projects where they may be used.
• Maybe reassign them to training. Get them to finish the mandatory training they haven't completed.
• Some may take vacation or leave. It's still compensable, but then they're not working so you don't run afoul of rules prohibiting voluntary work.
• Furlough: It's a last resort, but if there's no other work available, it may be necessary.
• Some workers may be required to be on "stand by" and not allowed to take on additional work due to the uncertain duration of a shutdown. This happens frequently with medical support personnel and others supporting deployed forces.

Do you need a federal employee in the office in order to complete your work?
• To approve payments?
• To accept deliveries of goods or services?
• To provide access to government facilities, personnel or information (including classified information)?
• For any other reason?

What kinds of costs are incurred that might be recoverable?
• Material/vendor costs
• Certain employee costs -- with or without an advance agreement.
• Recovery of "unabsorbed" overhead. (Cost incurred must be offset by insurance coverage paid.)
• Generally, no recovery of back pay or "consequential damages."
• Government ratification of intervening contractual actions.

Other questions to consider:
• Is your cash flow sufficient to accommodate a delay in payments?
• Can you fund B&P costs while waiting for delayed awards?
• Can you afford to pay your employees and not be reimbursed?
• What are the business implications of additional continuing resolutions for your key customers?
• What are any other potential implications?

Other things to remember:
• Analyze your current situations.
• Plan for multiple possible events.
• Document, document, document.
• Account, account, account.
• Mitigate where possible.
• Communicate before, during and after.

Disclaimer: Information provided is based on our experience, training, and judgment in interpreting the practical application and intent of official guidance and regulations.  It does not represent the official position of any government agency or their representative.