Government Shutdown or Continuing Resolution: What You Need to Know As a Federal Contractor

By Ann Sullivan

The federal government will shut down midnight on Saturday barring any action from Congress to extend funding. Known as “stopgap funding,” the Congress must pass a Continuing Resolution (CR) to keep the government operating until enactment of FY24 appropriations funding for federal agencies. Stopgap funding is not new, and neither are shutdowns. Not since Fiscal Year 1997 has the federal government received full-year funding before September 30. Three shutdowns have occurred in the last decade; 2019 was the longest on record.

If the Congress avoids a shutdown by approving a CR, federal agency funding is extended at prior-year funding levels. Agencies are often prohibited from using CR funds for “new starts” in programs, activities, and contracts. For federal contractors, this requires working with the agency’s contracting officers to understand any anticipated changes with respect to contract funding. If contracts are expiring, the agency often issues “bridge” contracts to continue the work until full fiscal year funding is secured.

During a government shutdown, federal employees are furloughed, and contracting work is paused—meaning contractors will not get paid for any work performed during the shutdown. There are, however, exceptions for federal agencies. Approved carve-outs during a shutdown include:

Employees and programs that are considered “essential” for protecting human life or property; health programs (e.g., medical care of patients, drug approvals), security programs (e.g., national security, border protection, care of prisoners), transportation programs (e.g., air traffic control), financial programs (e.g., key elements of banking system), programs funded outside of annual discretionary appropriations (e.g., US Postal Service), activities authorized by laws that permit obligations ahead of appropriations (e.g., contract authority), benefits payments covered by mandatory spending (e.g., Social Security) and programs that carry out core constitutional powers (e.g., granting pardons).

We suggest that contractors consult with the relevant federal agency contract managers this week as to whether the goods or services that may be provided pursuant to specific contracts are to be continued notwithstanding a shutdown. As a general matter (and there will be specific exceptions, so please be proactive with contract officers), contracts for goods generally will continue and be compensated for as funds obligated to the contract should be unaffected. Contract for services of all types will be very contract specific, thus it is very important to consult with contract managers before the shutdown (as they may not be available during the shutdown) to understand the impact of a government shutdown on a given services contract.

Although Congressional negotiations change on a continual basis, we expect the Senate will pass a Continuing Resolution (CR), funding the government for another seven weeks. At issue is whether the bill will contain additional Ukraine aid and disaster relief funding – as of this writing, the latest bipartisan package includes $6 billion for both. The House is less predictable because there is little to no consensus among Republicans on how to move forward with FY24 funding. House Speaker Kevin McCarthy (R-CA) floated the idea of a 30–45-day CR that includes a border security bill and a debt commission to cut federal spending. He indicated he will try and pass this version of the CR after the House votes on four appropriations bills. The appropriations bills the Speaker is referring to include: State/Foreign Operations, Agriculture/Rural Development, Homeland Security, and Defense. Whether a CR will get through the House remains unclear, as well as whether the Speaker will put a Senate-passed CR on the House floor for a vote at all. In order for the bill to make it to the President’s desk, the House and Senate versions must agree.