At the end of fiscal year 2010, Congress had not passed a single appropriations bill to fund the federal government for fiscal year 2011. To keep the government operating, Congress passed a short-term continuing resolution (“CR”) that expires, March 4, 2011. Pub. L. 111-242, 124 Stat. 2607 (Sept. 30, 2010). Although pundits are suggesting that Congress will extend the Continuing Resolution or will otherwise keep the Federal Government funded for at least another two weeks, there is a ring of truth to the saying “No one’s life, liberty, or property is safe while the legislature is in session.” Thus, a number of clients are wondering how best to prepare for Congress not reaching an appropriations agreement.

The answers can be relatively complex, depending upon whether you have a multi-year contract (usually meaning that the funds already have been appropriated) or an annually-funded contract or options (most contracts), whether your contract is for certain essential services that will be exempt from a shut down, whether you will need access to a government facility that may have to close, and what your tolerance for risk is.

That said, many of the basic issues that need to be understood, as well as many of the essential steps to consider taking, are straightforward and common to most government contractors, no matter their business. To assist your evaluation of how to prepare for a Congressional failure, we offer the following observations in the form of questions you may get from management and answers for you to assess.

What is a Continuing Resolution?

A CR provides the authority in lieu of annual appropriations to obligate funds and make expenditures at the rate of expenditure of the preceding year but only for the period stated in the CR. In contrast to regular and supplemental appropriations acts, CRs do not identify specific amounts for each budget account – e.g., a specific program. Instead, these bills provide the proportionate amounts from the months or weeks of the preceding year. When the CR expires, the authority to obligate and to expend funds ceases and creates a funding gap.

Is there a law that governs this issue?

Yes, the Anti-Deficiency Act prohibits the Government from creating an obligation – e.g., awarding contracts, issuing task orders, exercising options, increasing a contract price -- and making related payments in the absence of, or in advance of, a sufficient appropriation legally available for that purpose, though some exceptions apply. 31 USC §§ 1341, 1517. In addition, the Anti- Deficiency Act precludes most Government employees from working under most circumstances during a funding gap, because there is no authority or money to pay them. Once again, however, there will be exceptions for a limited number of “essential” personnel.

How are contracting operations different under a continuing resolution?

Once the CR is passed, the Government can award contracts, issue task orders, exercise options, or otherwise obligate funds (for example to increase a cap imposed by the Limitation of Funds clause) provided by the CR but only to the extent the period of performance will not go beyond the expiration of the resolution. Funds for new programs, projects, or activities not funded in prior fiscal years may not be obligated unless expressly authorized in the continuing resolution.

But what if my contract is already fully funded for this fiscal year?

If your contract is fully funded, whether through last year’s annual appropriation process, multiyear funding, or otherwise, you may generally continue performance on the existing work that is funded. Check the funding lines in your contract: There usually is an amount specifically obligated to the contract and often a clause identifying the performance period.

Whether you actually will be able to perform if the government shuts down is a different issue. For example, even if you have funding you may not be able to proceed as planned if a government facility you need to continue performance is closed or if there is some government inspection or approval necessary before you can proceed to the next step. For those types of issues, you may have to “work around” the problem but be sure to keep detailed records of the additional work and costs that you incur as a result.

Similarly, the personnel in the government’s payment offices may not be there to process your invoices and public vouchers. So, expect a delay in payments and anticipate cash flow issues.

If my contract is not fully funded, will I be reimbursed if I perform anyway?

Whether it is at the urging of the agency or as a result of internal management pressure to keep the customer happy, contractors may feel pressure to continue performance during a CR. Management should recognize, however, that the contractor is at risk for not being reimbursed. Remember, if there is no funding and no exception that applies, then no government employee can direct you to perform or commit the government to paying you if you do. Probably, the most you can achieve is an advance agreement from a contracting officer that if you perform and if the contract becomes funded the agency will endeavor to pay you.

Nonetheless, there is hope. When this issue has arisen previously, Congress has generally provided appropriations retroactively and included language ratifying obligations made during the funding gap.

What steps should I consider taking to protect the Company?

  • Open a dialogue with your Contracting Officers or the heads of your programs or both. Then confirm the dialogue in writing:
    • Determine the funding status of your contracts if it is not clear from the contract documents.
    • Ask whether each contract is subject to an exception to the rule that agencies must stop performance. If the answer is “yes,” get written confirmation of the specific exception. Additionally, get written confirmation that you will continue to be paid and seek direction about what the process will be for getting payment.
    • Ask what the agency’s plan is with respect to continuing performance on fully-funded or exceptional contracts, and specifically determine whether agency facilities, equipment, and personnel will be available for ongoing performance.
  • When you are performing on a funded contract, keep accurate records of any disruption and work-arounds you experience as a result of government personnel, equipment, or facilities being unavailable or late. This includes preparing accurate contemporaneous memoranda of what the problem is and how you addressed it as well as tracking your increased costs, including delay and disruption. This is no different than the sort of detailed record keeping you would engage in for constructive changes by the government; and these records will put you in a better position to be reimbursed for these costs once things get back to normal.