Government Shutdowns: A Federal Contractor's Survival Guide

Every year, it's the same story. Congress can't agree on a budget, shutdown threats dominate the news, and federal contractors are left wondering: What happens to my contract? Will I get paid? Should I keep working?

Whether you're currently on a contract or pursuing new opportunities, here's everything you need to know about navigating government shutdowns as a small business.

What Actually Happens During a Shutdown

A government shutdown occurs when Congress fails to pass appropriations bills to fund federal agencies. Without funding, agencies can't legally spend money, which means:

• Most federal employees are furloughed (sent home without pay)
• Only "essential" services continue operating
• New contracts cannot be awarded
• Many existing contracts are paused or stopped
• Contracting officers are unavailable

However, not all shutdowns are created equal. Some are partial (only affecting certain agencies), and the impact on contractors varies significantly depending on your contract type and funding source.

If You're Pursuing Contracts

Bad news first: the procurement process grinds to a halt during a shutdown.

What Stops

• New solicitations won't be posted
• Evaluations of submitted proposals pause
• Award decisions are delayed
• Questions to contracting officers go unanswered
• SAM.gov may have limited functionality

What You Should Do

• Watch deadlines carefully. Proposal deadlines may or may not be extended. Don't assume they will be—submit before the shutdown if possible.
• Document everything. If you can't submit because SAM.gov is down, screenshot the error messages. You'll need evidence if you request an extension.
• Keep preparing. Use the downtime to work on proposals, capability statements, and teaming arrangements. The backlog of awards after a shutdown can create opportunities.
• Monitor the news. When funding is restored, agencies often rush to obligate money before the fiscal year ends. Be ready.

If You Have an Active Contract

This is where it gets complicated—and where knowing your rights matters most.

The Stop-Work Order

During a shutdown, you'll likely receive a stop-work order from your contracting officer (or their designated representative). This is a formal instruction to cease work on the contract.

When you receive a stop-work order:

1. Acknowledge receipt in writing
2. Document where you stopped and what was in progress
3. Secure any government property or data
4. Identify any costs you'll incur during the stop (more on this below)

Contracts That May Continue

Not all contracts stop during a shutdown. You may be able to continue work if:

• Your contract is fully funded with prior-year appropriations that haven't expired
• You support "excepted" functions like national security, public safety, or protection of life and property
• Your contract is with an agency that has multi-year or no-year funding
• You're working on a fee-funded activity (some agencies generate their own revenue)

When in doubt, ask your contracting officer—in writing—whether your contract is affected.

Your Rights as a Contractor

Here's what many contractors don't know: you have legitimate claims for costs incurred during a shutdown. The FAR (Federal Acquisition Regulation) provides several avenues for recovery.

1. Stop-Work Order Costs (FAR 52.242-15)

If your contract includes the Stop-Work Order clause (most do), you're entitled to an equitable adjustment for:

• Costs incurred during the stop-work period that you couldn't avoid
• Costs of preparing for and resuming work
• Any increased costs directly resulting from the stop

2. Excusable Delays (FAR 52.249-14)

A government shutdown qualifies as an excusable delay. This means:

• You won't be held in default for missing deadlines caused by the shutdown
• The contract period of performance should be extended
• You shouldn't face liquidated damages for shutdown-related delays

Make sure to formally request a schedule adjustment in writing once work resumes.

3. Changes Clause (FAR 52.243-1)

If the shutdown materially changes your cost to perform the contract, you may be entitled to an equitable adjustment under the Changes clause. This is separate from stop-work costs.

4. Suspension of Work (FAR 52.242-14)

For construction contracts, the Suspension of Work clause provides similar protections to the stop-work clause.

How to Protect Your Claim

If you want to recover shutdown-related costs, documentation is everything. Start tracking from day one.

Document These Items

• The stop-work order (date received, who issued it)
• Employee timesheets showing idle time
• Efforts to mitigate costs (reassignment attempts, reduced hours)
• Subcontractor impacts and their claims to you
• Ongoing fixed costs you couldn't avoid
• Communications with the contracting officer
• Work-in-progress status when you stopped
• Remobilization activities when you restart

Submit Your Claim Properly

After the shutdown ends and work resumes:

1. Notify the CO in writing that you intend to submit a claim
2. Compile your documentation and calculate your costs
3. Submit a formal REA (Request for Equitable Adjustment) or claim under the Contract Disputes Act if necessary
4. Be reasonable. Agencies will scrutinize shutdown claims carefully. Only claim costs you can justify.

Special Considerations for Small Businesses

Shutdowns hit small businesses harder than large primes. You likely don't have the cash reserves to weather weeks without payment, and you can't easily reassign specialized staff.

Cash Flow Strategies

• Line of credit: Establish one before you need it. Banks are more willing to lend when you're not desperate.
• Invoice immediately: Submit invoices for all completed work before the shutdown if possible.
• Accelerate other receivables: Collect from commercial clients to offset federal delays.
• Communicate with vendors: If you'll be late on payments, tell them early. Most will work with you.

Employee Considerations

• Review your contracts: Employment agreements may address work stoppages.
• Consider furloughs carefully: Unemployment insurance varies by state, and you may lose key employees.
• Explore reassignment: Can shutdown-affected staff work on commercial projects temporarily?
• Communicate transparently: Your team is worried too. Keep them informed.

The Subcontractor Problem

If you're a subcontractor, your situation is more precarious. Your contract is with the prime contractor, not the government. Your rights depend on what's in your subcontract agreement.

Before the Next Shutdown

Review your subcontract for:

• Flow-down clauses: Does the prime's stop-work clause flow to you?
• Payment terms: Are you paid when the prime is paid, or on a fixed schedule?
• Termination provisions: Can the prime terminate you for convenience during a shutdown?

If your subcontract doesn't address these issues, negotiate better terms on future agreements.

Preparing for the Next One

Shutdowns are a feature of the federal contracting landscape, not a bug. Build resilience into your business model.

Diversify Your Portfolio

• Multiple agencies: Don't put all your eggs in one agency's basket.
• Commercial work: Some revenue that doesn't depend on appropriations.
• State and local: State contracts don't stop during federal shutdowns.
• Multi-year contracts: These are often funded upfront and less affected.

Build Financial Cushion

• Cash reserves: Aim for 3-6 months of operating expenses.
• Credit facilities: Established before you need them.
• Accounts receivable: Don't let invoices age. Collect aggressively.

Maintain Relationships

A good relationship with your contracting officer pays dividends during crises. They can advocate for your contract to be excepted, prioritize your invoices when payments resume, and expedite your claim.

The Bottom Line

Government shutdowns are disruptive, but they're survivable. Know your contract, know your rights, document everything, and don't work for free.

The contractors who weather shutdowns best are those who prepare in advance: diversified revenue, solid cash reserves, and contracts with protective clauses. The time to prepare is now—not when Congress is playing chicken with the debt ceiling.

And remember: when the shutdown ends, agencies will be scrambling to spend money. Be ready to capture your share.

— Sanders