The federal fiscal year begins on October 1st. For agencies and programs that rely on discretionary funding through annual appropriations acts, Congress and the President must enact interim or full-year appropriations by this date to ensure continuation of certain federal operations. A government shutdown has direct and indirect impacts on the economy and its severity generally depends on its duration and scope.
What to Expect: In general, the goods and services provided by the federal government cannot be provided during a shutdown.
- The most immediate effect of a government shutdown is on federal officials and employees. The shutdown forces agencies to place non excepted employees on furlough which prohibits them from performing their federal duties.
- Agency operations and programs funded with discretionary funds will cease operations. Programs that are funded by laws other than annual appropriations acts, such as some entitlement programs, may or may not be affected.
- The Office of Management and Budget has described the types of goods and services affected by agency shutdowns into the following categories:
- Direct services for veterans, seniors, and other “vulnerable” groups
- Public health and research
- Product safety and environmental protection
- Worker rights and safety
- International trade and relations
- Other government services (this could include the issuance of new Social Security cards, and shut down of E-Verify system for employers, the issuance of passports
- Mandatory spending related to Medicare, Medicaid, Social Security, and the U.S. Postal Service will continue as usual.
Government Contracts: The effects of a government shutdown on government contracts will largely depend upon the length of the shutdown, as well as the contract type, terms, and funding source.
- New Contracts: Agency funds are not able to be obligated above or in advance of an appropriation. This means that in the event of a government shutdown an affected agency cannot solicit or award new contracts. Employees of that agency involved in the procurement process will likely be furloughed and therefore prohibited from performing their job functions.
- Existing Government Contracts: Check with your agency or procurement officers. Certain agencies may issue contingency plans that provide guidance on how a shutdown will affect their contracts. In general, existing contracts might be affected in the following ways:
- Agencies may be restricted from obligating new funds under an existing contract.
- Agencies might also be unable to exercise options to purchase additional goods under existing contracts, modify contracts, allow performance on multi-year contracts, or obligate additional funds for cost-reimbursement contracts.
- Shutdowns could result in termination of a contract under circumstances specifically related to time limits which could expire during a shutdown.
- Fully funded contracts could see delays due to furloughed federal procurement officers unable to perform contract administrative actions. Contracts requiring work on government property may also be impacted due to closure of government facilities.
Given the uncertainty surrounding the duration of time a shutdown might last, a contracting officer may need to modify or take other action to address contractual issues AFTER the funding is approved. Government contracts and federal acquisition law provide mechanisms by which agencies can adapt to unexpected circumstances, like a shutdown, in ways that minimize costs to the government and further other federal procurement guiding principles. Please visit these websites for more information: https://www.whitehouse.gov/omb/information-for-agencies/agency-contingency-plans/
And R47693 (congress.gov)
