Over the past few months, the threat of a partial government shutdown became real. The initial shutdown broke the record for the longest shutdown in U.S. history – it lasted 35 days. It was resolved by continuing resolution, but the threat returned when the resolution was approaching its end. The threat for this fiscal year was resolved by a bill to fund the government through to September 30, 2019. However, after the President signed that bill into law, on Friday, February 15, 2019, he declared a national emergency under the National Emergencies Act to address “the crisis at our Southern border and stop crime and drugs from flooding into our Nation.” The Administration has identified up to $8.1 billion in funds to reprogram in order to fund border wall projects. According to the White House, “Projects are being planned for FY 2019 and beyond.”
This means that the President will be directing the affected agencies, including the Department of Defense and the Department of Homeland Security, to divert funds that were appropriated for specific programs and contracts and use them to fund activities under this emergency action. Lawsuits challenging the President’s authority to take this action have already been filed and more are expected.
What does this mean for government contractors?
This means that government contractors are not out of the woods as these funding decisions and actions may have ripple effects across a variety of government programs and contracts, including their own. For example, in order to fund the specific programs and contracts needed to address the President’s declared emergency, the Executive branch’s management and budget arm–the U.S. Office of Management and Budget–will be directing specific executive agencies to assess and take actions to free up funds that are currently intended for other activities and contracting actions. The agencies involved in these activities will have to determine which specific programs and funds to use to accomplish these objectives. This could result in agency decisions to reprogram money from a planned or ongoing procurement or contract so that it funds a different procurement or contract.
Moving funds out of a procurement could result in the delay or even cancellation of that procurement. Diverting funds from a given program could cause an agency not to exercise an upcoming option under the existing contract. Where incrementally funded contracts are involved, such changes could result in the agency’s deciding to provide no further funding for that contract. In certain cases, the agency could opt to reduce the scope or even terminate a pending contract to make funds available.
With regard to contracting actions to address the emergency, the agency could solicit and enter into contracts with partial or no funding, and provisions that subject the contract to funding limitations, e.g., clauses restricting contracting based on the availability of funds, limitation of funds, or some other restraint. These procurements may also may be subject to court or administrative challenges.
What should you do now?
- As a contractor, take stock of your contracts and procurements, and assess your potential contractual and extra-contractual risks and options.
- Evaluate your contracts to determine such things as whether and to what extent your contracts are funded now, or if they will need funding in the future.
- Take stock of your contractual obligations and potential provisions for seeking and obtaining relief
- If you have employees or subcontracts that might be impacted, assess these agreements and contracts for risks and options as well
- If you do receive notice to stop work, or directions that impact your contract’s scope, funding, period or method of performance, or schedule–even if it is a notice of a termination for convenience–you may have rights and potential remedies
- If you are involved in a pending or future procurement, consider your options for circumscribing your risks. Additionally, be on the lookout for agency or outside actions that may adversely impact the procurement or your rights under it.
As a government contractor you may have rights and remedies in these situations. It is important to consult with counsel as early in the process as possible to assess your range of rights, options and potential remedies.
For further information concerning the potential impacts of the National Emergency on your business, contact one of the members of Stinson Leonard Street’s Government Contracts and Investigations Practice Group.