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Legislative Update

Legislative Update

Special Report: What If The Government Does Shut Down?

Sep 27, 2013

The following special report is reprinted with permission of the law firm of Smith, Currie, and Hancock in Washington, D.C.

In a few days, on October 1, because Congress has not yet provided appropriations for any agency or a continuing resolution to keep the government going into the new fiscal year, the federal government may shut down.  If this occurs, federal buildings, military bases, national parks and many other government installations will close, and contracting officers and inspectors will not be at work.  In many instances, those facts will preclude federal contractors of all types from performing their contracts.  However, even if the government shuts down and will not permit the contractor to proceed it does not mean that the government will be liable for any damages (such as idle labor and/or equipment costs, unabsorbed overhead or even lost profits) that the contractor suffers as a result.

Cases relating to previous shutdowns have generally precluded contractor compensation because of the Sovereign Act Doctrine.  That doctrine provides that, when the federal government interferes with the performance of a contract to which it is a party, the government will not be liable for breaching the contract if the action causing the interference was taken in the national interest and had a public and general application.  Congressional action, or in this case inaction, usually meets these criteria.  While it may not get paid for any damages incurred, the contractor should, however, be given additional time on a day-to-day basis for any halt in its planned operations under the contract.

The above notwithstanding, other cases do hold that the government can agree to assume the risk that a sovereign act may cause it to interfere with contract performance.  Such being the case, the contractor would be well-advised to confer with the contracting officer and ask him/her to issue a suspension order of some sort if the shutdown looks probable, e.g., a stop work or suspension of work order.  The issuance of such an order will give the contractor the right to assert that, under the proper contract provision, the government assumed the risk that a sovereign act could halt performance.

Contractors would also be wise to discuss the possibility of a shutdown and what to do if it should occur with their employees and subcontractors (e.g., how the contractor will notify them if they need to come to work) as well as with suppliers (e.g., the possibility of deferring deliveries).

We hope that the information and general suggestions that we've made will help you deal with any shutdown if one occurs.  If you have a situation that does not neatly fit within these generalities, please contact us. 

For more information, contact Alan Saltman of Smith, Currie, and Hancock at 202-452-2140 or aisaltman@smithcurrie.com