When the government shuts down or restricts spending, some of all of the following things may take place: solicitations may be canceled; options may not be exercised; limitation of funds clauses will be used by agencies; payments may be delayed; only minimum orders may be placed under Indefinite Delivery/Indefinite Quantity (IDIQ) contracts; the changes clause may be used with greater frequency; the level of work may be reduced; the period of performance may be revised; the stop work order clause may be used; the suspension of work clause may be used; acceleration of performance may be ordered; and contracts may be terminated for default or convenience.
Theories of recovery include breach of contract and constructive changes.
This is quite a list and most commentators believe government agencies will use any or all of these actions. So what should contractors do? The preparations guide is simple but difficult.
Any interference in the contractor's performance gives rise to a constructive change for the breach of the government's obligation to cooperate with the contractor and not interfere in its performance. Explicit contract clauses may be implicated. So, contractors should set up separate charge accounts for the financial effects of a government shutdown. The immediate effect may be a failure to pay or the inability to reach the contracting officer for direction. The contracting officer may issue a suspension or stop work order because she is concerned about the Anti-deficiency Act (discussed elsewhere in these blog posts).
There is no question that a government shutdown is a government act in its sovereign capacity and therefore an excusable delay. (The shutdown also is an act of the government in its contractual capacity.) There should be no trouble extending schedules for delays caused by the government shutdown.
Since the shutdown also is an act of the government in its contractual capacity, claims may be submitted under the Changes, Suspension or Stop Work clauses. In response, the government may assert the sovereign act defense. We've written about this elsewhere in these blog posts. Simply put, the government can defend itself by showing the action was not undertaken to benefit it in its contractual capacity but rather was undertaken for the broad benefit of the public at large. There are arguments on both sides. The government will argue the shutdown was necessary for the public good. Contractors may argue the action was in part self serving and designed to further the government's interests in its contractual capacity.
In United States v. Winstar Corp., 578 U.S. 839 (1996), the Supreme Court drew a distinction between a pubic act intended to accomplish a broad government objective and an action tainted by a government objective of self-relief. In the latter case, the sovereign act defense does not apply. We believe that since the shutdown is a government act in its contractual capacity which furthers the government's interests, the sovereign act defense will fail. In a shutdown, the government fully intends that its actions will result in non-payments, delayed payments, changes, claims and terminations.
So, what should a contractor do? Document the effects of the shutdown. Treat it as any other potential claim for equitable adjustment. Set up a separate charge account to collect the financial impact of the shutdown. Consider submitting a request for equitable adjustment or claim. But most importantly, try to keep in touch with the contracting officer and request direction. If she is unavailable, put in writing what you intend to do in response to the shutdown and ask for confirmation from the contracting officer.
And consult a professional to help you submit your claim.
bill@spriggsconsultingservices.com bill@spriggslawgroup.com
