Considerations for Government Contractors in Light of Government Shutdown

At a Glance

• As of 12:01 am EDT on Wednesday, October 1, 2025, funding for the federal government expired as a result of Congress’s failure to pass a continuing resolution or broader budget bill. The shutdown will have immediate and far-reaching consequences for federal contractors across industries.
• Although some contracts and grants may be excepted or slated to continue under prior-year or indefinite appropriations, others may be suspended or delayed, posing operational and financial challenges for government contractors.
• Contractors and grantees should review all current contracts or grants to assess their exposure and risk, preserve their rights under various Federal Regulation Acquisition (FAR) clauses, and maintain operational continuity.

Although negotiations remain ongoing regarding a continuing resolution to fund the federal government, federal agencies and contractors face significant operational and financial disruptions in light of the current shutdown. For government contractors, the shutdown brings immediate uncertainty, as contracting officers may be unreachable, performance requirements may be suspended and payments may be delayed.

The impact of the shutdown will vary depending on contract type, funding status and agency-specific contingency plans. Contractors and grantees must act quickly to assess their exposure, communicate with government personnel where possible, and implement contingency measures to protect their workforces and financial positions. We outline below the immediate realities facing contractors and provide practical steps to mitigate risk and preserve rights during this period of uncertainty.

Impact of the Shutdown on Contractors

With the shutdown now in effect, many agencies are facing mass furloughs, leaving contractors without access to their primary government points of contact. Although some contractors may receive stop-work orders in the coming days, others may be left without formal direction, as attempts to reach agency personnel may go unanswered. The Anti-Deficiency Act prohibits federal agencies from authorizing expenditures or obligations without appropriations, and contractors performing unauthorized work may not be compensated in every instance. Accordingly, it is critical that contractors clarify their legal rights and obligations as they navigate their work in the coming days.

Notably, not all contracts are affected equally by the shutdown. Agency functions or programs financed with appropriations that have not lapsed may continue and are considered “exempt” from any shutdown procedures, even while a lapse has occurred in other appropriations. See Sec. 124, Circular No. A-11, Office of Management and Budget (Aug. 2025). Agencies may also incur obligations in the absence of an appropriation for certain “excepted” functions, including when authorized by a statute or court order, or where the subject function addresses emergency circumstances (i.e., “such that the suspension of the function would imminently threaten the safety of human life or the protection of property”). See id. Unlike federal employees, however, contractors are not guaranteed backpay for work halted during a shutdown, meaning that any labor or costs incurred during unauthorized performance may not be reimbursed. Further, contracting officers overseeing exempted or funded activities may nonetheless be furloughed during a shutdown, making it important for contractors to review an agency’s specific contingency plan to determine how to best manage its contract during the shutdown. Contractors should carefully document and track all shutdown-related impacts and avoid incurring costs that cannot be recovered.

Further, in addition to disruptions related to performance during the shutdown, statutory deadlines for filing claims and bid protests may also be affected. For example, the Government Accountability Office (GAO) is closed due to the shutdown and has issued a notice indicating that its Electronic Protest Docketing System (EPDS) will not be operational beginning at noon EDT on October 1, 2025. Accordingly, GAO will toll protest decision deadlines for a period of time equal to the length of time that GAO is closed. Deadlines for the filing of new protests that fall on a day that GAO is closed will be extended to the first day that GAO resumes operations, while any other existing filing deadlines will be extended by one day for every day that GAO was closed (i.e., if GAO reopens five days from now on October 6, an agency report originally due on October 3 would now be due on October 8). Contractors should closely monitor all deadlines associated with solicitations, bid protests and protest appeals during the shutdown.

Relevant FAR Contract Clauses

Importantly, the FAR permits contractors to submit a Request for Equitable Adjustment (REA) for certain shutdown-related cost impacts, such as the costs of maintaining idle facilities. To successfully recover costs, the contractor must provide prompt notice to the Contracting Officer of its REA, as the contract type and nature of the REA dictate the notice requirements for specific contracts. Thorough documentation of costs and mitigation activities, as well as rigorous line-item accounting, is critical for any REA.

Listed below are the standard FAR contract clauses that may give rise to an equitable adjustment following a government shutdown. This list is not exhaustive, and contractors should immediately review impacted contracts to identify applicable notice and procedural requirements.

FAR 52.242-14 — Suspension of Work

A contractor whose work is suspended, delayed or interrupted because of the government shutdown may be entitled to increased costs. The affected contractor must submit a claim in writing as soon as practicable after the suspension or delay event, but not later than the date of final payment under the contract. See FAR 52.242-14(c). Critically, a contractor cannot recover costs incurred more than 20 days prior to the contractor’s written notice to the government. In other words, to recover costs incurred on the first day of the shutdown (October 1, 2025), contractors are required to provide notice as early as October 21, 2025.

FAR 52.242-15 — Stop-Work Order

Where a contractor has received a written stop-work order due to the shutdown, and that order is subsequently cancelled or expires, that contractor must assert its right to an equitable adjustment for properly allocable costs no later than 30 days after the end of the work stoppage. See FAR 52.242-15(b). If the Contracting Officer chooses to terminate the contract in lieu of cancelling the stop-work order, the contractor will be permitted to reasonable costs resulting from the stop-work order.

FAR 52.242-17 — Government Delay of Work

A contractor may recover increased costs under FAR 52.242-17, provided the Contracting Officer’s action or inaction resulted in a delay or interruption that increased the contractor’s costs of contract performance. See FAR 52.242-17(a). Like the Suspension of Work clause, the contractor must provide written notice no later than 20 days after the increased costs are incurred. Accordingly, to recover costs incurred on the first day of the shutdown, contractors are required to provide notice as early as October 21, 2025.

FAR 52.243-4 — Changes Clause

For change orders expressly issued under FAR 52.243-4(a), a contractor must assert its right to an equitable adjustment within 30 days after receipt of the written order. Alternatively, in the absence of an express change order, the contractor may be entitled to an equitable adjustment if any written or oral direction from the Contracting Officer caused a change. See FAR 52.243-4(b). Although such action will be treated as a change order, the clause does not permit adjustment for costs incurred more than 20 days before the contractor provides written notice of the perceived change order. Thus, it is always in the contractor’s best interest to provide immediate notice of any perceived change.

Key Considerations and Action Items for Contractors

Federal contractors impacted by the shutdown should immediately take action to mitigate any consequences and adverse financial and operational effects.

Seek Immediate Written Guidance

If not already completed, contractors should immediately contact their contracting officers or alternate agency contacts to confirm whether performance should continue. Contractors should closely document all communications and attempts to reach government personnel.

Review Contract Funding and Clauses

Contactors should identify whether their contract is fully funded or incrementally funded. Further, contractors should review applicable FAR clauses to understand their rights and obligations, contacting legal counsel if needed.

Document Everything

Track labor expenses, costs, delays and disruptions in real time. To ensure future REAs and claims are processed and addressed in a timely fashion, contractors must also segregate shutdown-related costs to be submitted at a later date.

Implement Your Contingency Plan

Contractors may be required to adjust staffing and cash flow strategies. It is vital that contractors communicate clearly with employees, subcontractors and suppliers to align operations before implementing any organization-wide policies.

Monitor Agency and Office of Management & Budget (OMB) Guidance

Review agency-specific contingency plans and stay updated on OMB and Office of Personnel Management (OPM) directives regarding shutdown operations.

For More Information

Contractors must respond precisely and thoroughly to the government shutdown. By reviewing contract terms, documenting impacts of the shutdown, and providing timely notice to relevant agency contacts, contractors can preserve their rights and position themselves for cost recovery. For further information, please contact the authors.