Federal contractors are now facing another funding lapse as appropriations for several government agencies expired January 30, 2026. While some agencies received full-year appropriations in November and subsequent legislation, six of the twelve annual appropriations bills remain unfunded past the January 30 deadline.
This article explains how government shutdowns affect federal contractors operationally, what you need to know about your contracts during funding gaps, and what actions you can take to manage these disruptions.
What Happens During a Government Shutdown
A government shutdown occurs when Congress and the President do not enact appropriations legislation before the fiscal year begins or before existing appropriations expire. During a shutdown, the Anti-Deficiency Act prohibits federal agencies from incurring obligations or making expenditures without appropriated funds, with specific exceptions for activities deemed essential.
For contractors, this creates immediate operational questions: Should work continue? Will payment be received? Can contracting officers provide guidance? The answers depend on several factors specific to each contract.
Which Contracts Are Affected
Not all contracts face the same impacts during a shutdown. Understanding how your specific contract is funded determines what happens when appropriations lapse.
Fully funded contracts with obligated funding already in place can generally continue without interruption. If your contract was awarded with all necessary funding obligated before the shutdown began, work typically proceeds normally. The obligation of funds occurred when appropriations were available, so the contract can continue under existing obligations even during a funding lapse.
Incrementally funded contracts face potential disruption if the obligated funding runs out during the shutdown period. These contracts cannot receive additional funding increments until appropriations are restored. Work can continue only to the extent existing obligations remain available.
Multi-year and no-year appropriations function differently than annual appropriations. Contracts funded with appropriations that remain available beyond a single fiscal year generally continue during shutdowns affecting annual appropriations. However, if contract execution requires access to government facilities, personnel, or approvals, even funded contracts may face practical disruptions.
Contracts supporting excepted activities may continue regardless of funding structure if the work supports functions exempt from shutdown procedures. The Anti-Deficiency Act allows certain essential activities to continue during appropriations lapses. Each agency publishes contingency plans identifying which activities are expected.
The Payment Question
Payment timing during and after shutdowns creates significant concerns for contractors, particularly those without substantial cash reserves.
Invoices submitted during a shutdown typically will not be processed until appropriations are restored and government personnel return to work. This means the normal 30-day payment cycle extends by the length of the shutdown plus additional processing time as agencies work through backlog.
Contractors should anticipate payment delays extending beyond the shutdown duration. Unlike federal employees, contractors are not guaranteed back pay for work halted during shutdowns. Federal employees typically receive retroactive pay for furlough periods once appropriations are restored. Contractors generally do not receive automatic compensation for shutdown-related work stoppages unless specific contractual provisions apply.
Work performed during a shutdown without proper authorization may not be reimbursable. If a contractor continues work on an unfunded contract without a stop-work order or clear guidance that work should continue, payment for that work is not guaranteed. The Anti-Deficiency Act's prohibition on unauthorized obligations can prevent reimbursement for work performed without proper authority.
Accessing Government Personnel and Resources
Practical operational challenges arise even when contracts technically can continue. Government personnel availability becomes severely limited during shutdowns.
Contracting officers may be furloughed, making it impossible to receive official guidance, process modifications, or address issues requiring government action. Without access to your contracting officer, questions about whether to continue work or how to handle specific situations become difficult to resolve.
Government facilities may be closed, preventing contractor access to workspaces, equipment, or materials necessary for performance. Even if your contract is funded and you're prepared to work, physical access limitations can make performance impossible.
Approvals and reviews necessary for contract execution may be unavailable. If your contract requires government review of deliverables, approval of invoices, or other government actions before proceeding to next phases, these processes halt during shutdowns affecting responsible personnel.
Subcontractor and Supply Chain Considerations
Prime contractors face additional complexity managing subcontractors and suppliers during shutdowns.
Subcontractors look to prime contractors for guidance on whether to continue work. If you receive a stop-work order, you must immediately communicate this to your subcontractors to avoid incurring costs you cannot recover from the government.
Supply chain disruptions can extend beyond your immediate contract. Suppliers providing materials or services may be impacted by shutdowns affecting their other customers, creating delays even for your funded contracts.
Communication with your subcontracting partners before and during shutdowns helps manage expectations and prevents misunderstandings about work continuation or payment timing.
Getting Expert Support
Since 2010, USFCR has helped simplify government contracting for over 300,000 businesses by providing guidance through complex situations including government shutdowns. We help contractors understand their contract-specific situations, assess operational impacts, and develop strategies for managing disruptions while protecting their business interests. Whether you need help interpreting your contract terms during a shutdown, understanding your options for cost recovery, or planning for operational continuity, our consulting team provides the expertise you need to navigate these challenges effectively. Government shutdowns create uncertainty, but informed contractors with solid operational plans manage these disruptions successfully.
Actions Contractors Should Take
Proactive steps before and during shutdowns help manage operational and financial impacts.
Before a potential shutdown:
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Review all active contracts to understand funding sources, obligation amounts, and remaining available funding. Know which contracts are fully funded versus incrementally funded and which support excepted activities.
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Reach out to contracting officers to clarify expectations for your contracts if a shutdown occurs. Document these conversations and any written guidance received.
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Resolve outstanding issues requiring government action—invoice approvals, deliverable reviews, modification requests—before shutdown deadlines when possible.
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Assess cash flow implications and ensure adequate working capital to cover operating expenses during extended payment delays.
During a shutdown:
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Follow contracting officer instructions if you receive stop-work orders or other formal guidance. Document all communications.
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If you do not receive formal guidance, review your agency's publicly available contingency plan to understand which activities are excepted and whether your work potentially falls within excepted categories.
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Communicate clearly with your workforce about their status and any changes to work expectations.
Planning for Recovery
Shutdowns eventually end, but resuming normal operations requires planning.
Agencies will experience backlogs in procurement actions, invoice processing, and contract administration after shutdowns. Expect delays beyond the shutdown duration as government personnel work through accumulated tasks.
Statutory deadlines for actions like bid protests do not automatically extend during shutdowns. These time limits continue running even when government offices are closed, creating potential complications for time-sensitive actions.
Contract modifications and option exercises may experience delays if they could not be processed during the shutdown or fell during the backlog period after operations resume.
The Bottom Line
Government shutdowns create operational challenges for federal contractors that extend beyond simple work stoppages. Payment delays, limited access to government personnel, workforce management decisions, and subcontractor coordination all require careful attention during funding lapses.
Understanding how your specific contracts are affected, maintaining documentation of all shutdown impacts, and communicating proactively with government customers and your workforce help minimize disruption. While shutdowns are beyond any contractor's control, how you respond to them is entirely within your control.
Review your contracts now to understand their funding status and potential vulnerabilities. Establish relationships with your contracting officers and understand their guidance for shutdown scenarios. Build adequate cash reserves to weather extended payment delays. And maintain detailed documentation of all costs and impacts should shutdown situations arise.
Prepared contractors weather shutdowns as manageable business disruptions rather than existential crises. Take the time now to understand your exposure and develop your response plan.
Frequently Asked Questions
How do I know if my contract supports "excepted activities" that can continue during a shutdown?
Review your agency's published contingency plan, typically available on the agency's website. These plans identify which activities continue during shutdowns. If your work directly supports activities identified as excepted, it may continue. However, always seek guidance from your contracting officer when possible before making this determination independently.
If I don't receive a stop-work order, should I continue working during a shutdown?
This depends on your contract's funding status and whether it supports excepted activities. If your contract is fully funded and does not require government resources that are unavailable during the shutdown, continuing work may be appropriate. However, if you have any uncertainty, document your attempts to reach your contracting officer and consider conservative approaches to avoid performing unauthorized work.
Can I recover costs incurred during a shutdown?
Potentially, depending on circumstances. Stop-work orders include provisions for equitable adjustments. Work performed on funded contracts or in support of excepted activities is generally reimbursable. However, work performed without authorization on unfunded contracts may not be recoverable. This is why documentation of all shutdown-related costs and attempts to receive official guidance is critical.
How long does it typically take for payments to resume after a shutdown ends?
Expect at least 30-45 days from the shutdown's end before payment processing returns to normal. Agencies must work through accumulated invoices and return furloughed personnel to work. The longer the shutdown, the longer the recovery period as backlog increases.
