The extended duration of the October 2025 shutdown, which will soon be the longest in history, adds a new level of uncertainty and pressure for federal contractors and subcontractors. Does the shutdown excuse the government from paying invoices that come due during the shutdown? Can the government require contractors to work without payment? What relief can contractors expect for delays, cost increases, and other impacts of the shutdown? What options are available for contractors and subcontractors that are simply unable to perform without timely payment?

While there is no one-size-fits-all shutdown playbook that answers all of these questions, the guiding principles that appear in a few key contract clauses and decisions from prior cases should inform every contractor’s approach to the shutdown. Here are a few that we think are important:

1. The contract defines the government’s obligations and the contractor’s rights and remedies, even during a shutdown. Raytheon recovered layoff pay and subcontractor costs paid to personnel whose work locations were inaccessible during the 1995 government shutdown because the contract assigned the risk that NOAA’s offices would be closed to the government. See Raytheon STX Corp. v. Department of Commerce, GSBCA No. 14926-COM (Oct. 28, 1999). A logging contractor was unable to recover income lost during the 2013 shutdown because the contract stated that interruptions were expected. L&L Excavating & Land Clearing, LLC v. Dep’t of Agriculture, CBCA No. 3911 (Sept. 4, 2014).

2. The government may not cite the shutdown as a basis for withholding or delaying payments due under a contract. Most federal contracts provide for payment no later than 30 days after a contractor’s supplies or services are accepted or the designated billing office receives a “proper invoice. ”  FAR 52. 232-5, FAR 52. 232-27,  FAR 52. 216-7. In many cases—including construction contracts in which progress payments are computed on a percentage-of-completion basis—the Prompt Payment Act requires the government to pay interest on late payments “automatically, without request from the Contractor.” Contractual payment deadlines are not conditioned on the availability of funds, the operational status of the designated payment office, or the physical presence of the individual authorizing payment. According to one GAO report, DOD paid almost $21 million in late-payment penalties in FY 2011, and that figure is likely understated.

3. Contractors are not required to work for free but should be cautious in making the decision to stop work. The government’s failure to pay or direction to proceed without payment may be a breach of contract. But there is no simple hard-and-fast rule that defines when a delayed payment or an improper direction constitutes a “material” breach of contract. A contractor that stops work risks default termination and may face a government claim for excess costs paid to another contractor. The government bears the burden of proof in a contested default termination case, but winning is time-consuming, expensive, and not guaranteed.

4. The Sovereign Acts Doctrine is likely not an effective limit on the government’s contractual liability resulting from the government shutdown. The decision in Conner Bros. Constr. Co. v. Geren, 550 F. 3d 1368, 1380 (Fed. Cir. 2008),does not itself suggest that the Sovereign Acts Doctrine is a viable defense to a shutdown claim. In Conner Brothers, the court found that restricting access to a military base immediately after the September 11 terrorist attacks was a sovereign act.  It was “public and general” and the effects on the contractor were “incidental” to the government’s national security objective. The government will have difficulty making the case that government acts and omissions during a shutdown meet this standard. And apart from Conner Brothers, the government’s reliance on the Sovereign Acts Doctrine has met with limited success. The Armed Services Board rejected DLA’s use of the Sovereign Acts Doctrine to avoid a contractor claim for excess warehouse costs after the United States withdrew troops from Iraq. Anham FZCO, ASBCA No. 59283 (July 20, 2017). When President Reagan made the decision to limit the federal government’s involvement in the commercial satellite industry after the 1986 Challenger tragedy, the Federal Circuit rejected NASA’s use of the Sovereign Acts Doctrine to avoid liability for breaching a contract to launch commercial satellites. See Hughes Communications Galaxy, Inc. v. United States, 998 F. 2d 953, 958 (Fed. Cir. 1993). Even a 2019 Congressional Research Service memo explains that contractors generally have a right to additional compensation for halting and restarting work pursuant to a Stop-Work Order issued during a shutdown.

5. The availability of a contractual remedy for an impact of a government shutdown is not a blank check. Contractors must show that they are entitled to payment. Those seeking additional compensation will always be required to show that their incurred costs are reasonable. The reasonableness of a contractor’s actions in reducing the cost impact of a compensable delay is also an important consideration. Even when there is clear entitlement and no question as to cost reasonableness, contractors cannot expect to recoup everything they spend.

6. Contractors should take steps to preserve their rights and document cost and schedule impacts of the shutdown. The contractor in Garco Construction, Inc. v. Secretary of the Army, 856 F. 3d 938, 943 (Fed. Cir. 2017), was unsuccessful not because the government proved that it restricted the contractor’s base access in its capacity as the sovereign, but because the contractor “never formally requested a time extension.” Giving timely written notice to the contracting officer, modifying release language, and attending to other seemingly ministerial contract administration tasks, is always a good idea.

7. When submitting a request for equitable adjustment or claim, contractors should include an appropriately detailed narrative of the factual and legal basis for both entitlement and quantum, a signed certification when it is required, and appropriate supporting documents. These issues have been cited as a basis for jurisdictional and procedural questions that stand in the way of resolving matters on the merits. 

8. Contractors should consider engaging consultants and outside counsel early in the process. Using qualified consultants to assist in evaluating entitlement, preparing a request for equitable adjustment, and negotiating an equitable adjustment leads to better results. And as long as they are not incurred in connection with pursuing a “claim” against the United States, professional and consulting costs are allowable costs of contract administration under FAR 31. 205-33.

Further reading on this topic—

WARN Act Compliance during a Government Shutdown

The Contractor’s Perspective Shutdown Playbook

Kiewit-Turner and the Right to Stop Work

The Contractor’s Perspective on Surviving a Government Shutdown