Tracking shutdown costs now will determine what you can recover later
As the government shutdown moves into its second week, contractors need to track the impact on their business and that starts with understanding of what the guiding laws and regulations are.
A government shutdown is not a spigot that simply shuts off and then gets turned back on, as well as a problem with no single solution.
During a webinar Tuesday, law firm Holland & Knight and the National Contract Management Association presented an outline of what contractors need to consider and what they need to track.
Contractors have to consider the legal frameworks to consider, as well as impacts on contract administration and performance.
But perhaps the most complicated and resource-intensive aspect of managing through a shutdown is tracking the costs associated with stop-work orders and the inevitable restart order.
All cost-tracking work starts immediately with the stop-work order.
“If you’ve been directed to stop working, you need to do that. You need to wind down operations. You need to tell your subcontractors to stop,” said Jeremy Burkhart, an attorney at Holland & Knight. “You need to track everything you’re doing and you’re documenting everything you’re doing.”
Here are some steps that Burkhart and his fellow attorneys recommend:
- Immediately establish a dedicated cost-tracking system for all shutdown-related expenses.
- Document everything: emails, phone calls, decisions and their rationale.
- Send all required notices to the contracting officer, even if they are furloughed.
- Balance mitigation with readiness. Make defensible decisions about which personnel/resources to maintain.
- Track invoice submission dates to support Prompt Payment Act claims.
Companies will need the documentation and the data to recoup costs once the shutdown ends. Contractors should also track invoice submission dates carefully. Under the Prompt Payment Act, the government must pay interest on overdue invoices.
“The collecting of these costs and the accounting of them is something you’re doing as you’re going, but you want to be prepared to submit that request for equitable adjustment,” Burkhart said.
Companies will have about 30 days to file for equitable adjustment after the stop-work order ends or until final payment is made on the contract.
“The best advice is for cost to be tracked and documented in a separate stop work account so that it’s easy to track these costs and there’s no question that they’re related to a stop work order,” said Angela Jimenez, an attorney with Holland & Knight.
Burkhart and Jimenez recommend these four steps for companies to follow after the shutdown ends:
- Compile all documented costs with supporting evidence.
- Prepare your equitable adjustment request within the applicable deadline.
- Submit through proper channels with clear calculations and itemized expenses.
- Consider professional assistance as legal and accounting fees for preparing equitable adjustments may themselves be recoverable.
As contractors track their costs, they need to remember that the government will only reimburse what it considers “reasonable” costs. Companies need to be able to defend these decisions with documentation and data.
“You would need to show the math and itemized expenses and provide supporting documentation for your supporting cost,” Jimenez said.
Companies also need to look at each contract individually as “this is not something you can make decisions on broadly,” Burkhart said.
A second warning the attorneys offered involved prohibitions in the Anti-Deficiency Act against so-called voluntary work, or any work that continues after funding has lapsed. The ADA also sets the parameters for what is considered emergency work and can continue without appropriation.
“Unless your contract is included within one of these accepted activities, this is probably performance of improper voluntary services and you have to know that there’s a good chance you’re doing this at risk, there’s a good chance you’re not going to get paid,” said Greg Hallmark, a Holland & Knight attorney.
The longer the shutdown lasts the more financial pressure contractors face. Decisions such as furloughing employees are getting closer. Recouping costs is a matter of survival for many companies.
The attorneys offered these tips for surviving the shutdown and recovering costs:
- Understanding which Federal Acquisition Regulation clauses apply to your situation.
- Documenting everything as events unfold, not after the fact.
- Meeting all deadlines for notices and claims.
- Balancing mitigation with readiness in a defensible way.
- Seeking professional guidance when the situation is complex or unclear.