The current government shutdown has now stretched into its second month, creating mounting uncertainty for contractors across the federal marketplace. With agencies halting payments, delaying new awards, and leaving requirements unreleased, contractors are facing real-time challenges that go far beyond planning for a potential shutdown. Cash flow is tightening, staffing plans are in flux, and subcontractor relationships are under strain.

Contractors need actionable strategies for navigating this ongoing disruption and mitigating long-tail risks once operations resume. This FAQ explores what vulnerabilities to watch for during the shutdown, how to document impacts for future claims, and what risks could affect your business even after the government reopens.

What are the top risks for contractors during this government shutdown?

The biggest risk is severe cash flow disruption caused by delayed payments and halted funding, which can cascade into operational and staffing challenges.

Payment delays, including some agencies not paying invoices for work done prior to the shutdown, create cash flow issues, in some cases causing contractors to stop work on their own. Some of these customers are the contractors’ largest revenue sources, so they may resort to using credit lines to pay employees, incurring the additional burden of interest on what they borrow.

In addition, the shutdown is causing a delay in awards of new work, which can impact the workforce if there are gaps in funding. Requirements are not being released on schedule, which may impact staffing plans, since many contractors hire based on the needs and anticipated requirements of a project.

As a result, some contractors are activating the pay-when-paid terms in their agreements with subcontractors and vendors. Primes will likely continue to work, but some subcontractors may elect to stop work or redirect resources to limit their exposure. Determination of essential work as a contractor can be difficult, so if they are not considered “essential,” they will likely not be working and may not recover revenue.

How should contractors document and communicate shutdown impacts?

To preserve future claims or cost recovery, contractors must document every impact meticulously. This includes maintaining detailed records of canceled contracts, hours spent in stop-work phases, and severance costs for employees who had to be let go. Separate accounting for shutdown-related expenses – such as legal and accounting fees – is critical to maintain clarity when submitting claims. Monitoring the pipeline and noting delayed awards or funding gaps will strengthen the case for equitable adjustments. Formal communication is equally important: contractors should submit Requests for Equitable Adjustments (REAs) promptly and keep all correspondence professional and comprehensive to support future negotiations.

What risks remain after the shutdown ends and the government reopens?

Even after the government reopens, contractors will face lingering challenges that can impact recovery. Here’s what to watch for and how to respond:

• Compressed deadlines: Secure formal approval for schedule changes and adjust deliverables realistically.
• Knowledge gaps: Prepare for lost institutional memory by documenting processes and clarifying requirements early.
• Canceled requirements: Monitor budgets closely and diversify revenue streams to offset potential losses.
• Payment disputes: Keep detailed staffing records and proactively negotiate terms on fixed-price contracts.
• Higher unemployment claims: Plan for HR and financial impacts by reviewing workforce policies and reserves.

Resilience is key

A government shutdown isn’t just a temporary inconvenience; it’s a catalyst for contractual, financial, and operational risk. By documenting impacts thoroughly, communicating proactively, and anticipating long-tail challenges, contractors can safeguard their business and position themselves for recovery. Resilience is key: understanding vulnerabilities, managing cash flow, and staying agile in the face of uncertainty will help contractors weather the storm and emerge stronger.