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Focus on Regulation

Recovering Costs for Shutdown-Related Delays

Many federal contractors were forced to temporarily stop work during the recent government shutdown, which lasted more than two weeks.  In some cases, the government may have formally issued a “Stop Work Order” in response to the shutdown.  In others, contractors may have been unable to start or continue work due to the closure of government sites in situations where telework was not a viable or approved option for continuing work.  Some contractors also may have experienced delays due to lack of timely approvals and notices to proceed because their contracting officers were on furlough.  And now that the contracting officers are back on the job, they may be directing contractors to accelerate performance to make up for lost time caused by the shutdown.

All of these impacts have caused some contractors to question whether the federal government has any legal obligation to compensate them for increased costs suffered because of the shutdown.  Unlike the federal government, most contractors could not simply place their salaried employees on temporary furlough during the shutdown, free of any obligation to pay them.  For example, contractors may have instructed salaried employees that normally work at government sites to record their time to “Administrative” or “PTO” accounts during the shutdown period.  This time not billed to federal contracts could result in increased overhead cost that was not accounted for upon contract formation.  Additionally, contractors may have to absorb increased labor or material costs based on acceleration or delay of anticipated delivery schedules resulting from the shutdown.  These are just some of the financial repercussions facing contractors in the wake of the government shutdown.

There are Federal Acquisition Regulation (“FAR”) contract clauses that, under the appropriate circumstances, could support contractors filing requests for equitable adjustment to recover for the impact of shutdown-related delays.  These clauses include the standard “Changes” clauses (e.g., FAR 52.243-1 – FAR 52.243-5), the “Stop Work Order” clause (FAR 52.242-15), and the “Government Delay of Work” clause (FAR 52.242-17).  Notably, some of these clauses impose short time frames in which a contractor must assert its right to an adjustment.  For example, the “Stop Work Order” clause requires a contractor to assert its right to an adjustment within 30 days after cancellation of the stop work order.  For this reason, contractors should act promptly in considering whether to file a request for equitable adjustment based on shutdown-related delays.

The recoverability of costs related to the government shutdown will depend on the facts and circumstances of each individual case.  Contractors should assume that, as a baseline, they will be expected to develop thorough documentation to establish that the increased cost was caused by the shutdown.  This documentation could include financial records, agency correspondence, and relevant contractual terms or specifications.  Hogan Lovells lawyers have experience advising clients on the impacts of government shutdowns and similar delays.  Contractors considering these issues can contact Michael McGill, Pete Dungan, or Brendan Lill to assess the potential viability of and strategy for asserting a shutdown claim against the government.