How Will a Government Shutdown Effect Contractors?

Many federal employees are definitely effected by a government shutdown, in the form of furloughs. But, how will a government shutdown effect Contractors?

The last government shutdown is frequently pointed to as an example, but federal contracting has become much more utilized by the government, and much more critical, since the last shutdown. Therefore, the scenarios affered are often mis-applied when comparing the situation in 2011 to that in 1995.

The common consensus is that contractors with long-term, fixed-price government contracts will be safe. Also, many feel that programs with revolving funds that do not rely on congressional appropriations likewise would be exempt from the shutdown, such as the GSA’s Public Building Service.

But, companies relying on cost-plus and time-and-materials contracts are expected to be effected by the federal shutdown. Most cost-type contracts include a “limitations of funds” clause that allows legal grounds for the government to tell a contractor to cease working. Time-and-materials contracts, which are based on incurred costs, also would not be funded. And, while indefinite delivery-indefinite quantity contracts, such as GSA Contracts, would remain valid, no new orders could be placed.

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