The threatened government shutdown has created a great deal of concern on the part of both the contractor community and government agencies. Procurement players on both sides are raising questions about the impact of a lapse in appropriations on the continuity of contractor support. Government agencies may be tempted to encourage contractors to perform in order to avoid disruption of needed services and supplies. To maintain a good relationship with its government customers, a contractor may similarly be tempted to continue to perform on a voluntary basis with the expectation that additional funds will eventually be obligated and with the hope that it will eventually be paid. Even in the absence of extraordinary events like a government shutdown, contractors and agencies can encounter this temptation in more routine circumstances – for example, when an agency experiences difficulty obligating additional funds to a contract as the contractor approaches the funding ceiling.
While it is generally well known that contractors performing after contract funds have been exhausted are "at risk" of nonpayment, it is less well known that government employees who encourage or permit such voluntary performance are putting themselves at risk of administrative or criminal sanctions. This alert provides an overview of the legal implications for government contractors and their government customers when a contractor decides to voluntarily perform at risk under a contract after funding has lapsed. We also offer practical suggestions for dealing with government customers in these circumstances.
The Antideficiency Act and Related FAR Provisions
Under Federal Acquisition Regulation (FAR) Subpart 32.7, the federal government is required to either fully or incrementally fund all fixed-price and cost-type contracts.1In some circumstances, the government may initiate a procurement that is conditioned on the subsequent availability of funds for a new fiscal year, but may not accept any supplies or services under a contract until the Contracting Officer has notified the contractor in writing that funds are available.2
Under cost reimbursement-type contracts, where only the estimated costs are known at contract award, the Contracting Officer is required to include either a"Limitation of Cost" clause (for cost-type contracts where the total estimated contract cost is fully-funded) or a "Limitation of Funds" clause (for cost-type contracts where the total estimated contract costs is incrementally funded).3 Both clauses require the contractor to notify the Contracting Officer when it is approaching the contract's funded amount (often referred to as a contract "ceiling"), and further provide: (1) that the contractor shall not be obliged to continue performance beyond the contract ceiling, and (2) that the government is not obliged to pay any costs the contractor incurs that exceed the ceiling.4 The government, in its discretion, may choose to either terminate the contract or to increase the contract's estimated costs and funding. Id.
These requirements can place a contractor in an unenviable position when it is approaching the ceiling under either a fixed-price or cost reimbursement-type contract, particularly when the government agency customer has indicated informally that it intends to increase the ceiling, but has been unable to do so for a variety of reasons (including a government shutdown). In some instances, the contractor may be able to recover its costs under the doctrine of "equitable estoppel" if it is able to prove that it continued performing only after receiving assurances from the Contracting Officer that sufficient funding was forthcoming.5
Where the government is unable to increase the ceiling because Congress has not passed either new regular appropriations legislation or a continuing resolution to fund ongoing government activity, the Antideficiency Act prohibits federal officials from obligating funds before an appropriations measure has been enacted, except as authorized by law.6 Significantly, the Act also prohibits acceptance of voluntary services and employment of personal services exceeding what has been authorized by law.7 Exceptions are made under the Act for "emergencies involving the safety of human life or the protection of property."8
Even though the supplies or services provided by a contractor may not qualify under the "emergency" exception to the Antideficiency Act, as a practical matter both the contractor and agency personnel may be tempted to continue or to encourage continued performance. The temptation to continue performance in the face of a funding gap is often motivated by the gamble that either Congress will eventually pass appropriations legislation that will be retroactive or that the administrative delay in obtaining additional funds will be resolved. Moreover, it is often not a simple matter for a contractor to stop work for a temporary period while the government resolves its funding issues − contractor employees must continue to be paid and rarely can be diverted to other work. Regardless of whether the government's inability to fund continued contract performance is the result of a dramatic shutdown or mere administrative delay, the stage is set for a contractor to consider continuing contract performance "voluntarily," in the absence of a formal funding increase.
The Adverse Consequences of "Volunteering"
A contractor that volunteers to continue performance after exceeding a contract ceiling or in the absence of any appropriation is performing at its own peril. Under the Limitation of Costs and Limitation of Funds clauses, the government is not obligated to pay for continued performance after the allotted contract funding has lapsed, and only written direction from the Contracting Officer is sufficient to ensure that the contractor has a right to be paid. Although a contractor may elect to succumb to the pressure to continue performance in the absence of funding, it must be mindful of the risk it is assuming: it may never be paid.
Moreover, contrary to the understanding of some contractors, a Contracting Officer does not have unlimited discretion under the FAR to "ratify" after-the-fact any contractor invoice for work performed in the absence of contract funding. A Contracting Officer's ratification authority is limited to those circumstances where "[f]unds are available and were available at the time the unauthorized commitment was made."9 In the absence of circumstances such as express retroactive application by Congress of appropriations to the date that funding lapsed, or where the Contracting Officer otherwise can show that funding was available at the time the contractor's work was accepted, the Contracting Officer is likely precluded from ratifying any commitment to pay for such work.
What may surprise many contractors (and perhaps even government personnel) is that federal employees who encourage or permit a contractor to perform voluntarily place themselves at risk of administrative or even criminal penalties. Under the Antideficiency Act, a federal officer or employee who accepts voluntary services in violation of the Act shall be subject to appropriate administrative discipline including, when circumstances warrant, suspension from duty without pay or removal from office.10 In addition, an officer or employee who "knowingly and willfully" accepts voluntary services in violation of the Antideficiency Act "shall be fined not more than $5,000, imprisoned for not more than 2 years, or both."11 The FAR makes clear that federal employees who encourage a contractor to work at risk after appropriations have lapsed face the civil or criminal penalties outlined in the Antideficiency Act.12
Contractors facing a funding lapse due to a government shutdown should consider the following actions:
- A contractor should communicate with the Contracting Officer early concerning whether additional funds will be made available, including whether the contract is considered "mission essential" such that the contractor will be legally required to continue performance in the event of a government shutdown without violating the Antideficiency Act.
- If the Contracting Officer determines that continued performance is not mission essential, it is possible that either the Contracting Officer, program personnel or other government representatives may nevertheless encourage the contractor to continue performance after funding has lapsed. In these circumstances, if the contractor is not inclined to perform at risk, the contractor should consider requesting written confirmation from the Contracting Officer that continued performance in the absence of funds does not constitute the acceptance of voluntary services by the Contracting Officer in violation of the Antideficiency Act. It is likely that merely making this request will resolve any pressure the contractor was receiving to continue performance in the absence of funding. Alternatively, it is possible that such a request may spur the Contracting Officer to actively explore any possible remaining funding sources in order authorize performance in compliance with the Antideficiency Act (and without risk to the contractor).
- If a contractor elects to perform at risk, the contractor's available avenues for payment may be limited. As discussed above, if additional funds are eventually appropriated for the work, the contractor may request the Contracting Officer to "ratify" the government's commitment to pay for the contractor's performance under the FAR, subject to the Contracting Officer's determination that funds "were available at the time the unauthorized commitment was made" and other requirements. In addition, if a contracting official acting within the scope of his authority makes misleading statements to a contractor about the availability of funds to pay for work during a government shutdown or other underfunded work, a contractor may argue that the government is equitably estopped from asserting either the Limitations of Funds or Limitation of Costs clause as a defense against a contractor claim for payment.
Whether compelled by a government shutdown forced by congressional gridlock or simply an agency's administrative delay in allotting funds to a contract, a lapse in contract funding can be a pressure point for both the contractor and its government customer. Although a contractor considering continuing performance in the absence of available funds faces a risk of nonpayment, it also needs to be mindful of the risk to which it is exposing its customer in the event the contractor agrees to work on a voluntary basis. If a contracting official or other agency representative "knowingly and willfully" accepts such voluntary services, the contractor is exposing its customers to administrative action that could derail their careers and possible criminal prosecution that could result in jail time.
To avoid an unwitting violation of the Antideficiency Act by a government agency otherwise inclined to accept a contractor's voluntary services, a contractor can request clarification from the Contracting Officer about whether accepting the contractor's work during a funding lapse will violate 31 U.S.C. § 1342. By doing so, a contractor who is wary of working with no guarantee of payment can minimize its risk and, at the same time, protect the interests of the government officers and employees at its client agencies.