Potential Suspension of State Contracts

The Minnesota Legislature adjourned May 23, 2011 without reaching agreement on the biennial budget.  Since then, the fiscal standoff between Democratic Governor Mark Dayton and Republican lawmakers grinds on. 

In preparation for a possible government shutdown starting July 1, 2011, the Department of Administration issued a Notice to Contractors, Vendors and Grantees Regarding the Potential Suspension of State Contract Performance.  The notice alerts state government contractors that, except for funding for the Minnesota Department of Agriculture, the state's authority to expend or release funds to pay for goods or services will be limited after June 30, 2011. 

Unless a budget deal is reached, government contractors, vendors, and grantees will be directed to suspend work activity for contracts with the state that expire after June 30, 2011 or take effect on or after July 1, 2011.  Payments required to be made by the state under those contracts will likewise be suspended.  

To limit any negative impacts from a suspension, contractors, vendors, and grantees should consider the following steps:

• Assess effect of a shutdown on each state contract to which it is a party;
• Communicate with the appropriate state contracting officer or agency to establish consensus as to the contractor's duties in the event of a shutdown;
• Consider effect of shutdown on current contractor employees and develop contingency plans for reassigning or repurposing affected employees;
• Coordinate efforts with any affected subcontractors;
• Determine which contract suspension costs may be reimbursable and understand appropriate reimbursement claim procedure.

Contractors should also note that, as described, the suspension does not operate as a termination of the contract, so contractors will need to watch the situation carefully as the budget negotiations continue.