Businesses Must Prepare for Shutdown Impact on Grants, Contracts

With the probability of a federal government shutdown increasing by the day, understanding and planning for the practical effects is imperative for any business.

The federal government’s current fiscal year expires Sept. 30. So does its annual funding unless Congress enacts a continuing resolution or regular appropriations act for fiscal year 2024. An extended lapse in appropriations would require federal agencies to shut down non-excepted functions and furlough non-excepted personnel.

Only excepted activities and personnel involving “the safety of human life or the protection of property” would continue to operate. The ramifications of a federal government shutdown would be vast.

The Antideficiency Act

The Antideficiency Act generally prohibits federal personnel from making or authorizing an expenditure or obligation of funds, or involving the government in a contract or obligation for the payment of money, in the absence of appropriations, with limited exceptions.

Violations can be prosecuted as crimes. An extended lapse of appropriations forces federal agencies to “shut down” in order to comply with the Antideficiency Act. The longest shutdown lasted 34 days in fiscal year 2019.

Based on two opinion letters issued by then-Attorney General Benjamin Civiletti in 1980 and early 1981, and follow-on guidance by the Office of Management and Budget, federal agencies have developed their own contingency plans in case of a shutdown. OMB hosts a repository of these plans on the White House’s website. Legal and policy practitioners are dusting them off to help clients prepare for the possibility of an extended shutdown.

Contractors

A shutdown would significantly limit a federal agency’s ability to solicit and award new contracts. Even if funds are available outside the annual appropriations cycle, agency personnel generally would be prohibited from performing contract solicitation and award activities for non-excepted functions.

Existing contracts may also be impacted. Restrictions on an agency’s ability to obligate new funds may mean it can’t exercise an option under an existing contract to purchase additional goods or services, or make a modification that increases the government’s costs.

Formal acceptance of deliveries and services by federal agencies may not be possible due to furloughed procurement officers. In certain circumstances, existing contracts may even be terminated.

Grants

New grant applications would be affected by a shutdown. Reviews generally would pause for projects unrelated to excepted functions. Deadlines that fall during a shutdown would raise questions about whether submission should be moved up, or whether deadlines would be extended.

Existing grantees generally would continue to receive funds obligated before the shutdown occurs, but requests for modifications to existing grant administration may not be considered.

Rulemakings

The rulemaking process would largely come to a halt. Personnel generally wouldn’t be available to draft, review, or finalize new rules. Websites providing an electronic version of the Federal Register with proposed and final rules wouldn’t necessarily be updated, and public comment periods may be reduced.

The government’s ability to fully comply with the Administrative Procedure Act’s requirement to provide adequate notice and opportunity for public comment may be called into question.

Guidance

The Department of the Treasury’s development and finalization of guidance necessary for the implementation of new and modified tax credits may be delayed.

Statistics

The Department of Labor’s Bureau of Labor Statistics could cease collecting and analyzing information. This data is used not just by businesses and investors, but by entities such as the Federal Reserve in determining the direction of the economy.

Federal Reserve Chairman Jay Powell acknowledged this at a recent press conference when he said, “we wouldn’t be getting some of the data that we would ordinarily get.”

Meetings

Meetings with government officials would be another area of potential confusion. Non-excepted employees are prohibited from communicating on government devices or engaging in any official work.

Previous Shutdown Lessons

A year after the 2013 government shutdown, the Government Accountability Office found:

• Grants “effectively ceased with grants management officials furloughed and no payments made on existing grants” at the Federal Transit Administration
• Grants management activities “effectively ceased” and the review process for over 137,000 grant applications was rescheduled at the National Institutes of Health
• More than 1,700 contractor employees operating and maintaining Office of Environmental Management facilities for the Department of Energy were laid off or required to use leave because of “stop work” orders, with some programs taking four months to return to normal

Outlook

In October, the Securities and Exchange Commission is expected to finalize its climate disclosure rule, the Department of Energy to select regional clean hydrogen hubs, and the Economic Development Administration to designate tech hubs.

By the end of the year, the Treasury is expected to finalize tax credit guidance relating to clean energy manufacturing, clean power investment, clean hydrogen, sustainable aviation fuel, residential energy efficiency, and “foreign entities of concern.”

If a shutdown occurs, companies, investors, and other stakeholders attempting to make long-term business and investment decisions today will be forced to endure further uncertainty about the role of the federal government in their projects.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Matt Leggett is partner in K&L Gates’ public policy and law practice group and former Senate Energy and Natural Resources Committee chief counsel.

Ryan Carney is a government affairs adviser at K&L Gates and a member of the public policy and law practice. He was previously chief of staff for two members of Congress.

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