Federal Contractors May Be Able to Recover Costs Caused by the Government Shutdown

February 1, 2019

The current government shutdown is now the longest in U.S. history, and many federal contractors are incurring costs as a result of shutdown-related work stoppages and delays. Luckily, many federal contracts contain clauses that provide a potential avenue for recovery of such costs. Further, there are practical steps that contractors can take to increase their chances of recovering shutdown-related costs from the government.

What contract clauses might apply?

Several Federal Acquisition Regulation (FAR) clauses, including the following ones, could provide contractors with an avenue to recover costs incurred as a result of shutdown-related delays or work stoppages:

  • FAR 52.242-14 (Suspension of Work)
  • FAR 52.242-15 (Stop Work Order)
  • FAR 52.242-17 (Government Delay of Work)
  • FAR 52.243-2 (Changes – Cost-Reimbursement)
  • FAR 52.243-3 (Changes – Time-and-Materials or Labor-Hours)

It is very important to note that these clauses generally impose very short timeframes in which a contractor must provide the government with notice and/or assert its right to an adjustment. For instance, FAR 52.242-15 (Stop Work Order) requires a contractor to assert “its right to the adjustment within 30 days after the end of the period of work stoppage[.]”

How can my company increase its chances of recovering shutdown-related costs? 

One way federal contractors can increase their chances of recovering costs caused by the government shutdown is by setting up separate charge codes in their accounting systems to identify and segregate all costs incurred as a result of shutdown-related delays or work stoppages. These types of costs often include, but are not necessarily limited to:

  • Idle facility/staff/equipment costs
  • Costs to implement a stop work order
  • Severance pay if layoffs are necessitated
  • Recruiting costs for replacement employees
  • Unabsorbed overhead
  • Remobilization costs once work recommences

Moreover, contractors would be wise to document justifications for shutdown-related costs and document steps taken to mitigate the impact of the shutdown.

Finally, contractors should document any and all communications with the government regarding shutdown-related delays and work stoppages, as these may come in handy if the government attempts to invoke the Sovereign Acts Doctrine as a defense against a contractor’s claim for shutdown-related costs.

~Written by Bradley Arant Boult Cummings LLP