Government Shutdown’s Impact on the Construction Industry
There have been 18 government shutdowns in U.S. history, with the most recent one lasting from December 22, 2018 to January 25, 2019, the longest to date. During the partial shutdown, more than 420,000 federal government employees went without pay and nearly the same amount were furloughed. According to the Congressional Budget Office, the five-week shutdown took a significant economic toll, costing the US economy $11 billion, with nearly a quarter of that total permanently lost.
While the long-term impact of the 2019 shutdown is still being debated, another immediate takeaway involves the repair and construction of public infrastructure.
The shutdown left many contractors wondering how – or if – they would be able to perform their federal contracts, and federal construction workers, who depend on government funding for their services, wondering if their projects will cease. While construction contracts awarded on a fixed-price basis were largely unaffected by the shutdown, most cost-type contracts, time and materials contracts, IDIQ (indefinite delivery/indefinite quantity)/MATOC (multiple award task order)/MACC (multiple-award construction) contracts and those that had not yet been awarded remained in jeopardy.
And with contracts that did not require new funding, performance was still affected by the shutdown. For instance, a federal construction project may require access to federal facilities in order to perform the contract work. If those facilities were locked or otherwise unavailable because of the shutdown, contract performance could be impossible. Moreover, even if contract work could continue, some contracting officers and administrators were furloughed and thus unavailable to provide guidance or issue necessary changes or contract modifications during shutdown.
More troubling for some is the possibility that shutdowns will trigger the termination of a contract as part of the Antideficiency Act. This can occur under certain circumstances, such as if additional funds are not obligated after a funding limit is reached under a cost-reimbursement contract. In other cases the government’s authority to exercise options to purchase additional goods or services could be subject to a time limit, and the expiration could occur prior to the annual appropriations being provided.
Perhaps most heavily impacted by the shutdown are highway and transit projects. Bids on 26 projects totaling about $101 million in January, and another 19 projects in February worth about $35.6 million, have been delayed. The disruption in federal funding flowing to the states affects future projects for determining which departments were going to award bids. This will put the bidding process on hold, especially in states that receive a large share of their highway dollars from the federal government. Delays can push back those construction projects by months or even into next year. Working under a continuing resolution also stagnates federal funding at 2018 levels, creating an additional shortfall, because Congress had added money for roads and transit for 2019.
A prolonged government shutdown can significantly impact those operating in the public sector due to the extensive approval system installed by the federal government. With the various contracts and bids placed on hold during the shutdown, construction and development companies are regaining their footing with plans to track costs associated with the shutdown in case it happens again.