The Looming Government Shutdown

On October 1st, the government officially entered a shutdown after Congress failed the pass funding. Although we have experienced this before, each government shutdown comes with different effects for individuals, companies, and contractors. Let's take a look at what these impacts are and what people should expect.

First, the economy will be negatively affected. During a full shutdown, there tends to be higher unemployment, reduced consumer spending, and a disruption in services such as Small Business Administration (SBA) lending programs. This last consequence would limit access to capital and grants critical for small business growth. An economic decline would reduce the annual GDP growth. It's estimated that the GDP will decrease by 0.1% per week as the shutdown continues.

A government shutdown has a direct impact on economic sustainment and certainty. Consumers begin to lose confidence and draw back their investments. This causes a ripple effect, with less money being spent on businesses and consumer alike.

Secondly, companies that are heavily dependent on government contracts will see a downward decline in the expenditure they receive. Government contracting almost comes to a halt as a delay in funding occurs. During a government shutdown, many contractors face "stop work" orders on their contracts unless they are except. Expected contracts include shipbuilding, depot maintenance, critical munitions, and southern U.S. border operations. For non-expected contract, once the available funds are depleted, work cannot be continued until the new appropriation is approved. However, government contracts that are already fully funded may continue, but the terms of agreement must be upheld.

Finally, among the issue of delayed funding and uncertainty of payments, there will be a communication challenge between government officials and contractors. Management of contracts becomes complicated with the furlough of government employees. A silver lining that should be mentioned is the preparation procedures that government agencies do to circumvent these challenges, should they occur. An example of this is the contractual clauses that contractors are advised to review and fully understand if a shutdown occurs. Typically, this will sustain the planning and communication needed to uphold the contracts through their entirety.

While the essential agencies remain open during the shutdown, there will be complex challenges for small businesses working with federal agencies. The uncertainty of a shutdown underscores the importance of strategic planning and closely monitoring government communications to navigate through the shutdown effectively. If you have any questions about your contract and how it may be affected, contact us today as your GovCon experts.