A federal government shutdown occurs when Congress fails to pass appropriations bills or continuing resolutions to fund government operations. Under the Anti-Deficiency Act, agencies cannot spend money without congressional approval, leading to the suspension of non-essential services and contracts.
Shutdowns are not rare. Since 1976, the U.S. has experienced 21 funding gaps, with 10 resulting in furloughs.
Federal contractors are not guaranteed back pay like federal employees. Shutdowns can lead to:
Contractors with funding from prior fiscal years may continue operations, but those relying on new appropriations face uncertainty.
| Risk Type | Description |
|---|---|
| Operational Disruption | Inaccessible contracting officers, paused projects |
| Financial Loss | No pay for furloughed staff, delayed invoices |
| Compliance Issues | Risk of violating wage laws or contract terms |
| Workforce Retention | Difficulty retaining skilled staff without guaranteed pay |
| Legal Exposure | Breach of contract or labor law violations if not managed properly |
Contract lifecycle management software provides critical support in navigating shutdowns:
Track which contracts are funded, paused, or at risk. This helps prioritize work and avoid unauthorized spending.
Ensure adherence to FAR clauses, wage laws, and contract terms—even during disruptions. Contract management software supports corporate compliance management.
Maintain records of correspondence with contracting officers, even if they’re furloughed.
Monitor employee status, leave balances, and reallocation options to avoid layoffs.
Document all shutdown-related actions for future audits or reimbursement claims.
| Contract Type | Impact During Shutdown |
|---|---|
| Fully funded contracts | May continue until funds are exhausted |
| New or pending contracts | Likely paused or delayed |
| Indefinite delivery contracts | Depends on task order funding status |
| Essential services contracts | May continue under emergency exceptions |
What are contractors doing to prepare for the 2025 shutdown?
According to industry experts:
| Pros | Cons |
|---|---|
| Improves visibility and control | Requires upfront investment and training |
| Reduces compliance risk | May need configuration for federal contract nuances |
| Enhances communication and documentation | Dependent on agency cooperation and data availability |
| Supports workforce and financial planning | Not all platforms integrate with federal systems |
From our experience supporting federal contractors:
Book a free demo of CobbleStone Contract Insight® to experience all of these benefits and many others during government shutdowns and other uncertain situations, and when business is more stable.
Legal Disclaimer: This article is not legal advice. The content of this article is for general informational and educational purposes only. The information on this website may not present the most up-to-date legal information. Readers should contact their attorney for legal advice regarding any particular legal matter.