Government Shutdown: What Happens to Government Contractors

Government Shutdown: What Happens to Government Contractors

Government Shutdown: What Happens to Government Contractors?


As the government shutdown was anticipated, the U.S. Government has reverted and provided a continuing resolution to carry on with its operations. Read on and get a complete guide on what you need to know about the government shutdown.


What is a Government Shutdown?

A government shutdown happens when the legislative branch doesn’t pass essential funding bills that the executive branch needs to run. It usually occurs because of disagreements on budget allocations and delays in federal budget approval. When a shutdown happens, it stops some or most of the government’s operations.


When Congress in the United States falls short of approving legislation financing by October 1, the beginning of the new fiscal year, a government shutdown ensues. If no financing legislation is passed and no extension is in place, the federal agencies will be forced to suspend non-essential operations and other government services.


Government Shutdown: What Happens to Government Contractors?

U.S. legislative meeting
Photo by mark reinstein / Shutterstock


During shutdowns, contractors working for the government are in a particularly uncertain position. Depending on a number of factors, the shutdown might have different effects on different contractors such as the following:

  • The government may need to make adjustments to, or even terminate, many contracts with contractors. 
  • Government contracting activities may be put on hold, such as procurement, awarding new contracts to contractors, and releasing proposal requests.
  • During a shutdown, financed contracts must be completed unless a contracting officer issues a stop order for work or concludes the contract. 
  • Contractors may have to lay off workers or implement temporary furloughs. 


The Impact brought about by a Government Shutdown 


According to an ABC News article, the possible result of the 2023 government shutdown may lead to the following:


  • Contractors at risk of being laid off
  • Around 4 million employees may have delayed to no salary during the shutdown period
  • Over 10,000 children will hold access to the Head Start program
  • Inaccessible national parks
  • Several federal offices, such as the passport office, would close
  • Clinical cancer R&D will delay


However, everything will return to its place, and employees will get paid once the shutdown ends.  There will also be government operations and projects that will continue during the event, such as the U.S. Postal, Social Security, and Medicare services.


In fact, the majority of government operations will continue since only 27% of federal expenditure is discretionary. Three-quarters of the government is mandatory and will operate back to normal.


What Happened to the 2023 Government Shutdown?

U.S. President Biden signing bill to avert government shutdown
Photo by Alexandros Michailidis / Shutterstock


Last minute, before October 1, 2023, U.S. President Joe Biden signed the 45-day funding bill, averting the nearly government shutdown this year. This stopgap funding measure will keep the government open and aid the possible domino effect on the country’s economy.


The House approved the stopgap funding bill with a vote of 335 to 91. The decision provides an additional 45 days for the government to remain operational while the House and Senate work on their financing legislation.


What’s next?

After President Biden signs the bill, there will be around 45 days of temporary funding. Congress, including the Senate and House of Representatives, should have discussed how they will avert another possible shutdown. Ideally, the agreement should be made before November 17, 2023, to avoid delayed paychecks of federal workers. 


If the shutdown happens, the U.S. government will face other finance budgets that will rise. It includes funding supporting the Ukrainian government against Russia and credit concerns—worth  $31.4 trillion in debt.


Best Practices to Avert a Government Shutdown

Government shutdown impact on government contractors
Photo by SaiArLawKa2 / Shutterstock


There is a lot of unpredictability for federal vendors during shutdowns. Planning will keep the businesses going and organized despite the threats of budget shutdown.

Federal contractors can prepare and lessen the effects of a shutdown by taking the following measures: 


  • Review the Agency Contingency Plans

During this challenging time, the government is busy making further plans to continue operations and may be unable to handle federal contractors well. Federal contractors should review the Agency Contingency Plans to determine how the potential or ongoing shutdown might affect your contracting agency. Educating with the contingency plan will help contractors develop strategies and minimize risks during unexpected events.


  • Connect and Communicate with Government Clients

Interacting with government clients and program contracting officers is crucial by asking them your concerns and gathering the partner’s insights for the next move. Here are a few important questions to help you gauge your stand during shutdown:


  • Is the cash flow sufficiently stable to withstand a payment pause?
  • Can you make employee payments without being reimbursed?
  • Is it possible to cover Bid and proposal expenses despite lengthy award delays?


  • Coordinate and Plan Ahead

In times of crisis, regular communication with internal teams can reassure workers, and even subcontractors, that their voices are heard and help alleviate their worries. Ensure compliance with shutdown standards and learn about the effects on employees by coordinating with core teams and departments, including human resources and legal counsel. 


In a worse scenario, it is essential to determine whose employees are at risk of being furloughed and what can be done to get them ready for the time off.  


  • Stay Updated

Although many contractors will be carrying out their existing contracts, it is crucial to watch for required notices and timeliness standards to ensure that any recoverable funds are obtained as soon as possible. Maintaining documentation and submitting bids on time would also be necessary.



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