RGCI - The Debt Ceiling – What Does It Mean to Contractors

Does a Government default due to the debt ceiling result in a Government shutdown? Well maybe. It all depends on how the Government reacts or directs its contracting officers to react. A default is different than the – shall we say itnormalyes, we said it – Government shutdowns we have been dealing with for the past decade or so.

Under a typical beginning of the Government fiscal year shutdown the issue is the appropriation of new funds. New contracts and existing contracts relying on current year funds are impacted. And yes, Federal offices may be closed impacting some programs. However, the Government has the money to pay its current bills – your requests for payment.

Under a default the Government has the appropriated funds and can continue to incur obligations. It simply does not have the money to pay those obligations – yes, again your requests for payment.

What is a Government Contractor To Do?

We simply do not have a straightforward answer. It is going to come down to how the Government reacts to the default and what it instructs it contracting officer to do. Below are a couple potential scenarios.

The Government Attempts to Limit the Incurrence of Additional Obligations

Contracting Officer may issue stop work orders. If a contracting officer sends a stop work order the contractor is going to be required to stop work as efficiently as possible and start collecting data to support a request for payment or equitable adjustment. Again, this is complicated by the type of contract. Continuing to perform at the contractor’s risk after a stop work order is likely to be seen, at least by DCAA, as failing to comply with the contracting officer’s written direction in the stop work order.

The Government Does Nothing

Remember the Government is not like a business. The contracting officers have appropriated funds (i.e., budget) to continue to obligate – so spending money that may or may not get paid to whom it is owed is not really the contracting officer’s problem. A contractor may find itself in the position of being expected to continue performance with a question as to if and when payment for that performance will be forthcoming. FAR 52.233-1, Disputes, clause incorporated into most Government contracts, requires in (i) that “[t]he Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer.” We believe this requires the contractor to go out at its own risk to continue performance.

The way we see this second scenario is that the Government can start spending your money directly from your bank account versus having to tax you first – what is the world coming to?


Let us all hope that the children can play nice and get this resolved. But if not:

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors from contract award to contract closeout. We would be happy to be part of your team.

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Written by Redstone Team

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Government Shutdown, Government Regulations, Federal Acquisition Regulation (FAR)