January 28, 2019

Shutdown Ends for Now – What, When and How Can Affected Contractors Get Paid?

Holland & Knight Government Contracts Blog
David S. Black | Robert K. Tompkins

It's official – the longest federal government shutdown in history is over, at least for now. For contractors whose work and payments were affected by the shutdown, the questions now are: what can we get paid for and how do we get it? As with so many things, the short answer is: it depends. Because contracts were affected (or not) in a variety of ways, and because there are a number of different methods – formal and informal – by which work might have been interrupted contractors need to address these questions on a contract-by-contract basis.

Our government contracts and labor and employment teams have been fielding an array of questions from government contractors impacted by the shutdown. Not surprisingly, the core theme of many of them is "how do we get paid for this?"

Here are some basic considerations contractors should consider:

1. Were my contracts affected by the shutdown? In some cases, this will be quite obvious, but in others not so much. The initial question to ask is were any of my contracts with agencies that suffered a lapse in funding? Even if the answer is "no", it's also important to explore whether any of your contracts are administered by an affected agency. This could, for example, mean payments on your invoices might be disrupted if they are processed through an affected agency. A contract-by-contract review is necessary.

2. What Notices or Direction did we receive from the Government regarding our Contract? In cases where contract funding lapsed, a contractor should have received a formal notice from the contracting officer explaining the impact of the funding lapse and directing the contractor as to what to do. Where contract performance was interrupted, the Notice likely would have invoked a specific contract clause regarding Suspension of Performance or a Stop Work notice. The Notice could also have been in the form of a Termination for Convenience. The nature of this formal direction is important because each FAR clause defines the what, when and how a contractor can seek payment. The key FAR clauses to be on the watch for include:

52.242-14 (Suspension of Work)
52.242-15 (Stop Work Order)
52.242-17 (Government Delay of Work)
52.242-1 (etc.) (Changes clauses)

There are subtle and sometimes important nuances associated with each clause, including what can be recovered under each, when a request for payment must be made and the form that request must take. Again, each contract and contract file must be reviewed to determine which (if any) of these FAR clauses was invoked.

3. What if we did not receive any formal Notice from the Contracting Officer? Let's face it, this happens. Even though contracting officers could legally take steps to wind down work – i.e. take steps necessary to implement the shutdown – not all of them did. In addition, in some cases a contract may have had sufficient funding and not required any interruption in performance on the basis of funding. But many contracts were indirectly affected because the shutdown meant the contractor could not perform as required by its contract. For example, the government facility at which the contract called for work may have been closed making it impossible to perform. These situations are highly fact-specific, but there are potential remedies available, including under the FAR Changes clause.

4. What about my employees? This is an area where we have received quite a lot of questions, especially from services contractors. We discussed these issues at length in our webinar last week. In a nutshell, contractors have to consider their legal obligations to their employees under federal and state labor and employment laws. We know, for example, that many contractors resorted to having employees take "PTO". Can this be recovered? Maybe. In some cases, the law may impose severance or other payment obligations on contractors, including for example where non-exempt employees worked a portion of a pay period. Other contractors may have decided to keep employees on payroll to avoid losing their services once the government reopened. Can this be recovered? In some circumstances, a contractor has a good argument that the answer should be "yes."

5. Have we documented our costs and efforts related to the shutdown? The burden is on the contractor to demonstrate their entitlement to costs and to the amount (or quantum) of costs. As we initially cautioned in our December 21, 2018 blog post the day shutdown began, documenting all wind-down and start-up costs and creating separate accounting categories for those efforts and costs is important. Contractors which took this important step will be in a better position to maximize recovery. Even those that did not still will have a basis to recover costs, but may have some additional work to do.

6. What if we exceeded our Contract funding? As we discussed in our webinar recently, contractors who work "at risk" are just that, at risk of not getting paid. Under certain circumstances, a contracting officer can retroactively fund a contract. However, there are substantial limitations on their ability to do so. If a contractor is in this situation, proceed carefully and get good legal advice.

7. So all of this leads to: What can a contractor get paid? As noted above, there are several ways in which contract performance may have been interrupted. Each avenue presents its own set of requirements and limitations for how, when and what a contractor can be paid. There are a few general principles to keep in mind, including the following:

  • Generally, a contractor is entitled for payment up to the time of the Notice to terminate, stop or suspend performance. A contractor may also be entitled to the cost of winding down, and starting back up, once the stoppage ends.
  • A contractor generally has a duty to mitigate its costs, including the costs associated with its teaming partners. That said, there are a number of scenarios in which costs cannot be completely eliminated, at least right away. These might include where the law requires a certain amount of notice, or continued payment for a period of time. For example, in some cases, federal labor law requires an employee who works a portion of a week to be paid for the entire pay period. In the right circumstances, these required payments might be recoverable.
  • Costs of preparing the payment request. In some cases, the cost of preparing the request itself, including fees paid to outside professionals like lawyers and accountants, may be reimbursable as well.
  • Interest payments on aging invoices. Regardless of whether work stopped under contracts, for many, invoices have gone unpaid. Contractors may have the ability to recover interest under the Prompt Payment Act.
  • Pay attention to contractual deadlines. For example, to ensure it is considered, a request for equitable adjustment under the Stop Work clause (FAR 52.242-15) must be asserted within 30 days after the end of the work stoppage. In contrast, under the Suspension of Work clause (FAR 52.242-14) and the Government Delay of Work clause (FAR 52.242-17), an agency will disallow costs incurred more than 20 days before the contractor gave notice of the unreasonable suspension or delay. In addition, any claim under FAR 52.242-14 or FAR 52.242-17 must be asserted in writing "as soon as practicable after the termination of the suspension, delay, or interruption." In some circumstances, agencies may have discretion to consider requests or claims asserted after these deadlines.

8. What if there's another Shutdown? This is a real concern. The current short-term government funding only lasts until February 15. It is possible we end up right back in another shutdown in less than three weeks. Regardless of whether there's another shutdown, contractors should aspire to submit payment requests on outstanding invoices as soon as possible. Contractors should also promptly submit all accrued invoices which can be submitted to ensure they are paid as expeditiously as possible and so they will start accruing interest if payments are delayed further. As a practical matter, the government is likely to process requests for payments in the order they are received. Well-organized, well-documented, and well-founded requests stand a better chance of getting paid, and paid promptly. As a legal matter, the FAR imposes specific deadlines for submission of requests. Failure to submit within these deadlines could lead to the denial of a request.

As discussed above, each contract needs to be reviewed. The ability to recover is largely going to proceed on a contract-by-contract basis. Given the unprecedented extent of this shutdown, the risks to contractors and the potential recoveries are going to be larger than before. Contractors should seek professional assistance in preparing and pursuing requests for payment.

To see how we can help, please contact Bob Tompkins or David Black. For more information about the shutdown, please see our prior postings on the subject:

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