If Minnesota’s state government shuts down on July 1 over the budget impasse, state employees will be laid off and there will not be anyone to administer state contracts and the state funding of other contracts.  For this reason, the Commissioner the Administration has notified all contractors, vendors, and grantees that “work activity under the contracts as of [July 1, 2011,] must be suspended, pending authorized appropriations, as will all payments required of the State of Minnesota under those contracts.”

We all hope that the shutdown can be avoided.  If it isn’t, however, contractors will have to button up their jobs by July 1, will likely lay off workers, and won’t receive any payments during the shutdown.  Contractors will continue incurring costs during any shutdown, as they will need to keep their job sites safe.  Minnesota already has a short construction season, and a shutdown may delay the completion of many projects into 2012.  Contractors will also have less work to bid, further pinching them.

Contractors on Mn/DOT and State projects will be entitled to a contract price increase to cover the extra work and delays caused by the suspension.  Under Mn/DOT specifications, contractors seeking delay damages for the suspension must submit their claim in writing within seven days after receiving notice to resume work.  These claims are part of the unpublicized hidden costs that the public will bear if our leaders do not resolve the budget impasse by July 1.

To minimize the impact of the potential delay, contractors may want to submit pay applications now in the hope that they will be paid before July 1.  They should also move their equipment onto private jobs before July 1, as wide-load permits will not be issued during the shutdown.  Additionally, contractors should sign subcontracts and accept purchase orders with the condition that limits the subcontractor’s or supplier’s extra compensation for a shutdown to whatever the contractor receives from the State on their behalf.