Winter 2024
Preparing Your Construction Project for the Next Federal Government Shutdown
By: Rachel Burkhart, Associate, and Eric A.O. Ruzicka, Partner, Dorsey & Whitney LLP
Since narrowly averting another federal government shutdown in September 2023, Congress has passed four continuing resolutions to temporarily fund federal agencies’ activities. Funding for some programs will expire on March 8, 2024, while others are funded through March 22, 2024.[i]
The federal government has become increasingly reliant on these temporary stopgap measures to address appropriations issues. Unfortunately, every time a fiscal cliff date approaches, the threat of a widespread federal government shutdown resurfaces, sending agencies and federal contractors scrambling. In the event of a shutdown, the day-to-day operations of many affected agencies will cease, government facilities will close, and thousands of federal employees could be furloughed without pay. Even after the shutdown ends, backlogs are likely as agencies play catch-up from the temporary pause in operations.
All of these disruptions could create complications for ongoing and future construction projects, whether they have clear federal components or whether they are completely private in nature. This primer offers some best practices for preparing construction projects for a possible federal government shutdown.
Recommendations for Federal Contractors
Federal contractors should begin planning for a potential shutdown now by investigating the impact it will have on their ongoing projects. If the fiscal cliff date comes and goes without a new funding measure in place, the federal government is expected to go through an “orderly shutdown” process. Many agencies have prepared contingency plans outlining the steps they will take in the event of a shutdown.[ii] Each contingency plan includes details about which operations will continue as excepted activities during a lapse in funding, as well as the number of employees expected to be furloughed as part of the plan.
Federal contractors can and should proactively reach out to their contracting officer (“CO”) for directions on what work, if any, will continue on the project during any potential shutdown. Obtaining written instructions from the CO is especially important for incrementally funded contracts and for cost-reimbursable contracts that may end up over-budget. If the CO is unavailable to notify the contractor that additional funds have been allotted or to otherwise authorize a work stoppage, the contractor could be forced to continue performance at its own financial risk.
Even if an ongoing project is “fully funded”, federal contractors should take the time now to carefully assess the status of their ongoing projects in light of a potential shutdown.Theoretically, a shutdown should not affect fully funded projects because the funds have already been obligated to cover their costs. However, if the project relies on input from federal employees who are furloughed, access to federal facilities that are closed, or performance from other contractors who do require additional funding during the lapse, that project could still face significant impacts. Federal contractors should attempt to resolve any action items that require the CO’s approval or direction prior to any potential shutdown.
If a shutdown does result in disruption to the project, relief may be permitted under the contract’s Changes or Government Delay of Work clauses. The federal contractor should follow the processes set forth in those provisions. All communications with the CO should be documented in writing, and the federal contractor should keep detailed cost records for any extra work performed or delays incurred as a result of the shutdown. Any mitigation efforts should also be well-documented. It may be appropriate to establish a separate protocol for tracking shutdown-related costs.
Finally, for future planned projects, federal contractors should consider the impacts a shutdown will have on competition and award of contracts. A shutdown will prevent the federal government from committing annual funds to commence work on new projects, and limitations on agency resources could delay review and award of other proposals.
An extremely important point is that even though the government is shut down, contractors should assume that all deadlines remain in place. This includes proposal submissions, bid protests, appeals of CO decisions, and court proceedings. The government can take the position that even though it was shut down, you were not and a missed deadline could be a missed opportunity.
Guidance for Private Construction Projects
The consequences of a lapse in federal government activities in the private sector are often overlooked and underappreciated. Disruptions are likely to occur if the project relies on federal inspections or permit issuances, access to government facilities, or supporting work from federal contractors. Owners and contractors working on private construction projects should carefully assess whether their work will be impacted by a federal government shutdown.
A federal government shutdown may also have less obvious, but potentially far-reaching impacts on private projects. For example, a slowdown or halt in permitting and inspection activities could negatively impact project schedules if they depend upon action from the Environmental Protection Agency or the Department of the Interior. Ports of entry may experience backlogs if Food and Drug Administration inspections are limited. Similarly, the Occupational Safety and Health Administration may need to triage incidents as part of its enforcement activities, resulting in longer response times and delays in returning to work after a worksite accident. A pause in the issuance of loans from the Small Business Administration may also hamper the ability of subcontractors or vendors to perform on the project or cause an owner relying on an SBA loan to change course on a project.
While some of these impacts can be anticipated and planned for through consultation with the agency and referencing its contingency plan, others may require quick action and effort to identify and manage. As with federal contractors, private contractors should carefully document any cost or time impacts they experience as a result of a shutdown and follow the processes for claiming compensation for those events in their contracts.
A federal government shutdown can mean serious disruption to federal construction projects, and reduced agency capacity could significantly jeopardize private projects. Given the increasing frequency of actual and threatened shutdowns, contractors and owners should plan ahead for those potential disruptions.
[i] Appropriations Watch: FY 2024 | Committee for a Responsible Federal Budget (crfb.org)