Where we stand

The fiscal year ends on September 30, 2025, meaning that if Congress fails to pass a funding bill or to agree on a stopgap measure before the end of the month, the Government will face a shutdown on October 1, 2025. Shutdown is, of course, a misnomer: A variety of essential Government functions will continue during a lapse in appropriations and, as discussed below, performance under many contracts will continue. A contractor’s shutdown plans will be determined by which, if any, of the contractor’s operations will need to be curtailed.

Preparation for a funding lapse should begin notwithstanding the possibility of a last-minute agreement on a temporary extension of funding, just as preparation for a major weather event should begin even though a storm could change direction at the last minute. On September 19, 2025, the US House of Representatives passed a continuing resolution (CR) introduced by Republican leadership to extend Government funding through November 21. That bill was subsequently defeated in the US Senate, as was a bill introduced by Senate Democrats, which would have funded the Government until October 31 while also permanently extending Affordable Care Act insurance subsidies, reversing Medicaid cuts, and limiting the Trump administration’s ability to roll back previously appropriated funds, among other provisions.

The atmosphere on Capitol Hill is not putting lawmakers in a dealmaking mood, but even if lawmakers agree to a short-term CR, there has been little discussion of a long-term plan to keep the Government funded. While the looming threat of a funding lapse can be especially stressful for those in the Government contracting industry, a little planning can go a long way to alleviate the risk of an October surprise.

Step 1: Review the funding status of contracts

Government contractors should first take an inventory of their contracts to determine which ones would be impacted in the event of a shutdown. Not all contract performance must cease following a lapse in funding.

Assess whether each contract is:

• Fully funded. Fully funded contracts have had all necessary appropriations obligated at the time of award. These contracts may continue during a funding lapse.
• Incrementally funded. Incrementally funded contracts rely on periodic funding obligations. If the next increment is not obligated before the funding lapse, performance may be suspended.
• Dependent on new appropriations. Contracts that are dependent on new appropriations are at high risk of a work stoppage in the event of a shutdown.

To help you determine which category your contracts fall into, look for the following clauses:

• Stop work clauses, including FAR 52.242-14 (Suspension of Work) and FAR 52.242-15 (Stop-Work Order), allow contracting officers (COs) to unilaterally require the contractor to stop work for 90 days.
• FAR 52.232-18 (Availability of Funds) signals that a contract is contingent on future appropriations, making it vulnerable during a lapse in those appropriations.
• FAR 52.232-22 (Limitation of Funds) indicates a contract is incrementally funded and the Government is generally not obligated to pay more than the funding currently allotted.

Step 2: Determine whether work is essential or may be disrupted by facility access

In addition to how contracts are funded, two other factors have a major impact on whether contract work will continue during a funding lapse.

• The contract work is essential. Essential work may continue during a shutdown and is characterized as work that involves:
  • National security
  • Protection of life or property
  • Emergency services

Note that contractors should never attempt to determine for themselves whether their work is essential. Before performing any work under a contract that is not fully funded, contractors should seek confirmation – from COs with authority to bind the Government – that the contractor’s performance has been deemed essential and must continue during a funding lapse.

• The contract work requires access to Government facilities or personnel, or it involves interdependencies with other Government or contractor operations that may be suspended. Even if a contract is fully funded prior to a funding lapse, if the contract work requires access to a Government facility or the involvement of nonessential Government personnel, expect a disruption in work.

As the risk of a shutdown grows, seek written guidance from COs where possible and ask:

• Will our contract be classified as essential?
• Will Government personnel remain available?
• What contingency plans are in place?

Seek written guidance where possible and document all communications.

Step 3: Submit invoices as soon as possible and confirm receipt

Now is not the time to procrastinate on submitting invoices. Once a shutdown begins, invoice processing may halt, delaying payments and straining cash flow. Rather than waiting for the end of the month, submit all invoices for completed work as soon as possible and confirm they’ve been received and processed. This is especially critical for cost-reimbursement contracts, which may face payment delays in the event of a shutdown.

Step 4: Prepare for operational disruptions

Even if your contracts continue, a shutdown will trigger delays in the following:

• Award announcements
• Contract modifications
• Option period exercises
• Payment processing

Action items:

• Assess your cash flow and determine whether you can sustain operations for 30 or more days without federal payments.
• Develop contingency plans for paused work:
  • Reassign employees to unaffected projects where possible.
  • Schedule training or internal development.
• If furloughs or terminations are needed, review the implications of employment laws, including:
  • Fair Labor Standards Act rules for exempt vs. nonexempt employees
  • Paid time off and furlough policies
  • WARN Act thresholds for layoffs
• Coordinate with subcontractors:
  • Prepare to issue formal notices if work is suspended.
  • Review flow-down clauses and obligations.

Step 5: Execute your shutdown plan

If no deal is cut on Capitol Hill and we wake up on October 1 (or November 22) to a Government shutdown, confirm which contracts will continue and which are suspended. Next, it is time to put the shutdown plan into action:

• Implement your workforce plans:
  • Enforce furloughs or leave policies in compliance with wage laws.
  • Disable access to work systems for furloughed employees.
  • Communicate clearly and in writing to prevent unauthorized work.
• Document everything:
  • Track shutdown-related costs, including
    • Expenses for idle labor
    • Ramp-down and ramp-up expenses
    • Legal and administrative overhead
  • Consider establishing separate cost codes for shutdown-related expenses.
  • Maintain records to support equitable adjustment or delay claims under:
    • FAR 52.242-17 (Government Delay of Work)
    • FAR 52.243-1 (Changes-Fixed-Price) and FAR 52.243-2 (Changes-Cost-Reimbursement)
  • Keep a centralized log of all shutdown-related communications and costs to support future claims.
• Monitor legal and procurement developments to stay informed about:
  • GAO bid protest suspensions
  • Court deadlines, as a Government shutdown does not mean litigation deadlines have automatically been suspended
  • Agency updates on contract resumption

Step 6: Post-shutdown recovery

Once the Government reopens:

• Resume performance only after receiving written direction from your CO.
• Submit claims for equitable adjustments, if applicable.
• Reassess contract schedules and deliverables.
• Debrief internally to improve future shutdown preparedness.

Shutdowns may be unpredictable, but a few simple steps can help mitigate the uncertainty. With a solid plan in place, clear communication with employees and Government contacts, and a bit of strategic foresight, contractors can avoid the shutdown panic.