Key Financial Strategies for Prolonged Federal Work Stoppages

When federal contracts are disrupted due to prolonged stop-work orders, terminations, or a federal freeze on invoice payments, government contractors feel the financial impact immediately. Maintaining financial stability during these periods requires swift and strategic planning, pursuit of alternative funding, and effective communication with contracting officers. 

Financial Planning

1. Cash Flow Management: Stop-work orders and terminations can create an immediate cash flow crisis as many invoices submitted before the stoppage may not be paid, but winding down work brings new costs, such as severance packages, lease obligations, and demobilization expenses.

Solution: Explore short-term liquidity options, such as securing lines of credit, negotiating extended payment terms with vendors, and prioritizing cash conservation strategies. Other helpful tools may include invoice factoring, bridge loans, emergency working capital loans, and flexible credit arrangements.

1. Cost-Cutting Without Disrupting Operations: Cutting costs too aggressively can impact long-term viability.

Solution: Implement phased cost reductions by negotiating extended payment terms with vendors, consolidating office space, and reducing, eliminating, or deferring discretionary spending. Evaluate workforce management strategies to retain key personnel while reducing labor costs, such as temporary reassignments or partial furlough. If considering staff reductions, weigh the costs to retain those roles against the cost or difficulty to replace them if operations resume.

1. Leveraging Financial Risks and Seeking Outside Expertise: Understanding the financial risks and potential liabilities of a work stoppage is critical for making informed decisions, but these can be challenging to assess internally.

Solution: Engage financial consultants and legal experts specialized in federal contracting to conduct risk assessments and cash flow funding gaps analysis. Additionally, consider diversifying revenue streams by pursuing state and local government contracts or commercial work to reduce dependency on federal funding.

Accessing Emergency Funding

1. Government Assistance Programs: Emergency relief from the Small Business Administration (SBA) and Department of Defense (DoD) do not cover contract disruptions due to policy changes, and many disaster relief programs are exclusively available to DoD contracts. 

Solution: Reach out to lending institutions familiar with government contracting (and ideally those you already have a long-standing relationship with) to streamline loan application processes. Additionally, contractors should closely monitor for federal assistance programs that may emerge in response to broader economic instability, though they may be limited. 

1. Recovering Costs through Equitable Adjustments: Contractors may be entitled to recover costs incurred during work stoppages but following proper filing procedures is critical for receiving reimbursements.

Solution: Submit a Request for Equitable Adjustment (REA) to claim allowable costs under the Federal Acquisition Regulation (FAR), including idle labor, lease obligations, and indirect costs. Most importantly, keep detailed records of all incurred costs, communications, and government directives to substantiate claims. 

Communicating with Contracting Officers

1. Maintaining Open and Constructive Dialogue: Miscommunications with contracting officers can lead to misunderstandings about contract status and allowable expenses. 

Solution: Proactively schedule regular check-ins with contracting officers to discuss the status of the work stoppage and anticipated resolution timelines. Document all verbal discussions in follow-up emails to ensure alignment and accountability. If you experience challenges getting in contact with your contracting officer, consult your legal team. 

1. Proper Documentation Standards: Complete and supportable records are imperative for expediting cost recovery efforts. Insufficient documentation could derail the audit or negotiation process and undermine the amount you’re able to recover.

Solution: Maintain a centralized repository of contract-related communications, government notices, and cost-tracking documents. Additionally, develop a standardized process for logging work stoppage-related costs and justifications to support future reimbursement claims. 

The bottom line

Managing your business through prolonged federal work stoppages requires a combination of financial preparedness, alternative funding access, and clear communication with government stakeholders. Because of the nature of the current work stoppages as they relate to federal policy priorities, government contractors should immediately focus on proactive cash flow management, cost-cutting, and seeking reimbursement through REAs. By implementing these strategies, contractors can minimize financial risks, ensure regulatory compliance, and position themselves for stability and growth once contracts resume. 

Navigating terminations, claims, and settlement packages can be complex, but you don’t have to do it alone. Aprio’s Government Contracting and Nonprofit teams are here to guide you every step of the way. Whether you need support with claims work, termination settlements, or strategic planning, we’re ready to help. 

Connect with an Aprio team member.  

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