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Stay Prepared: 7 Action Items for Government Contractors

These are seven action items government contractors should prepare for before the shutdown begins.

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Companies contracted with the federal government should anticipate the possibility of a shutdown and develop contingency plans to address the impact on materials, clients, employees, and the overall production process. These seven action items should prepare government contractors in advance of a potential shutdown.

1 | Compile a list.

List all active contracts/grants and a list of all pending contract awards. For each active contract/grant, note the following:

  • Is the work currently funded, and if so, when will funding run out? Agencies may continue to pay contractors if funds were already obligated in prior years with ‘no year’ or multi-year funding.
  • Is the work possible to perform without access federal facilities or personnel?
  • Is the work deemed ‘essential’, and exempted from shutting down? Confirm that exception with the contracting agency.
  • Are employees required to work in a federal facility or can they work elsewhere?
  • Must employees stop work, be furloughed or can they be reassigned? Can they take paid vacation or complete training during the closure?
  • Has the Contracting Officer (CO) given any direction about continuing or ceasing work? Are any other staff deemed authorized to give direction on the matter?

2 | Review your federal contracts carefully.

Most government contracts contain a clause in the “solicitation and contracts for supplies, services, or research and development” sections that permits the contracting agency to issue a stop work order. Contractors should verify if that clause exists in their contracts. If so, the contracting officer should issue the stop work order in the event of a government shutdown.

These clauses should be reviewed and considered carefully:

  • FAR 52.242-14 (Suspension of Work)
  • FAR 52.242-15 (Stop-Work Order)
  • FAR 52.242-17 (Government Delay of Work)
  • FAR 52.243-1 (Changes – Fixed-Price)

3| Review agreements you have with subcontractors.

Primes need to carefully review agreements to ensure there are clear instructions in the event of a shutdown.  Many times, there is no guarantee the government will full compensate contractors after the shutdown, and they need to avoid paying their subs more than they are getting paid. Trouble can arise when a prime contractor is not getting paid by the government, but the terms of the subcontract requires payment after a government closure.

4 | Review staffing and hiring processes. 

As always, exploring your options before you need to make decisions is helpful. But it’s important to make a deliberate plan for your employees. Understand the feasibility of these potential staff management choices, keep in mind  the employment laws that contractors must follow, and plan to vet any employment actions with legal counsel.

Alternative Assignments | In order to protect your employees income during a shutdown, can you implement alternative assignments for employees on affected contracts – and then return them to the contracts after the shutdown?

Furloughs | Government contractors should review benefit plan documents to confirm if, and under what circumstances, a furlough triggers a loss of coverage eligibility. Depending on applicable state law, employees who are furloughed (full or partial week) due to a government shutdown may be eligible for unemployment insurance benefits. Employees should be directed to obtain more information from the applicable state offices, and government contractors should not make any representations to employees regarding eligibility for unemployment insurance benefits.

Layoffs and Terminations | In such case, an employer is required to provide affected employees with notice of their rights and responsibilities under the Consolidated Omnibus Budget Reconciliation Act (COBRA). While an exception may apply for “unforeseeable circumstances,” the Worker Adjustment and Retraining Notification Act (WARN Act) requires 60 days’ written notice to covered employees in advance of a “mass layoff” resulting in an “employment loss” – which includes termination, layoff of 6+ months, or a 50% reduction in hours. Government contracts who are unionized may have to enter into mid-contract negotiations with unions if immediate layoffs and exceptions to layoff and other collective bargaining agreement provisions are required.

Paid Time Off  | Is it an option to advise or require employees to take leave during the shutdown? Under the Fair Labor Standards Act (FLSA), government contractors may make mandatory deductions from an exempt employee’s PTO or other leave banks for a full or partial day’s absence during a shutdown, furlough or reduced-hours plan, without affecting the employee’s FLSA-exempt status, as long as the employee receives their full salary. However, government contractors should also consider applicable state law.

Additionally, remember:

  • Salaried workers are entitled to a full week’s pay if they do any work. So long as an employee does not perform any work, government contractors may treat an exempt employee’s full-week furlough as unpaid leave. The burden is on the employer to ensure employees are not performing any work from home, even limited work such as checking email and minimally communicating with customers.
  • You need a mechanism to disable access to work laptops and devices to enforce stop work directives. One option is to temporarily collect work computers and phones and/or disabling email and network access.
  • Permanent reductions in salary due to economic conditions can be done, but carefully and in consideration of state law.
  • Employers should also consult with counsel regarding H-1B, H-2B and E-3 employees who are placed on a non-productive status or reduced work schedules. They must continue to be paid at the full rate specified on their visa documentation, unless filing an amended Labor Condition Applications with the U.S. Department of Labor and H-1B/H-2B/E-3 visa petitions with the U.S. Citizenship and Immigration Services (USCIS). However, government processing won’t occur, and web-based filing resources will be unavailable.
  • You probably will not have access to the e-verify system for new hires. Employers must continue to complete I-9s for new hires, but USCIS will likely suspend the 3-day completion rule. Employers should not take any adverse action because of E-verify interim case status without consulting with immigration counsel.

5 | Review your finances.

As a small business owner, you need to ensure you have the funds to sustain your business for the duration of a shutdown. Ensure materials orders and bills are always up to date and answer the questions below in advance so you’ll be prepared to seek a recovery of expenses within 30 days after the end of the work stoppage:

  • What percentage of your government work is considered essential? If you have enough, it could keep the organization afloat during a closure.
  • What percentage of your government work is funded? Multi-year appropriations are unaffected by the current appropriations legislation. When funding is depleted, you must decide to stop work or continue, with the risk of not receiving payment for work.
  • Have you received a stop work order? If not, you will be held accountable to continue working. If so, document all wind-down and start-up costs and create separate accounting categories for those expenses to support a future claim when the government reopens.
  • How will you mitigate costs and cover expenses? Mitigating costs where possible, and protecting cash reserves, and opening a line of credit are some ways to help with the reduced cash flow.

6 | Set a communication strategy.

Early, proactive communication with your contracting officer will help ensure you get updated promptly.  Likewise, you must communicate with your team clearly and proactively to maintain morale. Your employees need to know where to report, if they’re being reassigned, and how you will contact them as after-hours decisions are made. Your vendors and subs also need to know if they are subject to a stop-work order, delays or reallocation of supplies.

Then, decisions related to employees, vendors and subcontractors need to be communicated to your contracting officer. Full circle documentation and communication will help you to present a request for an equitable adjustment that is targeted to the cost of the shutdown.

7 | Implement your action plan.

Once you have received a stop-work order, which may last up to 90 days, be sure it includes the following provisions:

  1.  a description of the work to be suspended
  2.  instructions concerning the contractor’s issuance of further orders for materials or services
  3.  guidance to the contractor on action to be taken on any subcontracts
  4. other suggestions to the contractor for minimizing costs

If there is time and funding on the contract, without a stop work order, work is expected to continue throughout the closure – yet you may not have access to your agency contacts. While extensions may be granted, it’s best to assume all deadlines are unchanged.

Now is the time to assess staffing needs, consider subcontractor arrangements, implement communication protocols, anticipate cash flow interruptions, and utilize accounting measures to account for shutdown-related costs. Sell or use expiring materials and return rented equipment.

Give clear written instructions to employees regarding the expectations for furloughed employees to perform or not perform work and make sure all work responsibilities are adequately covered by employees who are not furloughed.  Scheduling furloughed time on a week on/week off basis or scheduling limited employees to work partial weeks/reduced hours during the shutdown can help.

Throughout the shutdown, stay in close contact with departments and employees about the potential cutoffs and communicate with clients about impacted timelines and deliverables.

Stay informed.

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