GovCon guide: 2025 government shutdown

This was co-written with our partners at Berenzweig Leonard, LLP

Overview

On October 1, 2025, the federal government’s funding lapsed, leading to an ongoing government shutdown. Due to their deep ties with federal funding, government contractors have been heavily impacted by federal interruptions and should quickly take steps to help protect their businesses. This shutdown adds in a unique variable with the possibility of federal layoffs, rather than furloughs, occurring as a result of this lapse in appropriations.

With the length of the government shutdown still to be determined, contractors should act now to help minimize the operational impact the interruptions may have on their bottom line and workforce, as well as take steps to ensure they are prepared for federal operations to resume.

Impact on contract operations

Stop work orders

• Not all contracts will be affected by the government shutdown, but incrementally funded contracts and those dependent on new appropriations are more likely to be put on hold. Contracts that have been fully funded before the shutdown, and thus are not subject to this appropriations bill, are more likely to continue, although even fully funded contracts may be paused or impacted by unavailability of government personnel or closed government facilities. There are also some contracts that will continue running because the obligations are authorized, necessarily implied by law, or focus on national security or emergency preparedness.
• A stop work order can be applied to any contract that includes FAR 52.242-15 stop work order, can be complete or partial, and can come at any time. The government must explicitly state what is covered by the stop work order. FAR 52.242-15 is not a mandatory contract clause, so check your contracts for relevant clauses, prepare your staff for possible stop work notices, and develop a plan to notify your subcontractors. If you have not yet received word, reach out to your contracting officer as soon as possible to find out if your contract could be paused. Your contracting officer is the only one who can issue a stop work order and let you know if your program is shut down or not. This can change from day to day, depending on which federal employees are furloughed, and which may be called back. Your contracting officers may be difficult to reach during the shutdown, so exercise as much persistence and patience as possible.
• If you receive a stop work order, you must stop work, and you must instruct your subcontractors and vendors to do the same. While Congress has retroactively paid its federal workforce during a shutdown, the government generally is not required to reimburse a contractor for any work done while a stop work order is in effect. Any such work is performed “at risk” to the contractor.

Documentation and reimbursement

• Contractors should document all communications with the government about the shutdown and any stop work orders, identify the impact of any stop work orders, and mitigate costs. Keep detailed accounting records of all stop-work and start-up costs, segregating the accounting for these costs, where possible. Contractors should capture all time spent on winding down and starting these contracts back up, even on firm fixed-price contracts.

• If a contractor received a stop work order pursuant to FAR 52.242-15, it will have 30 days after the end of the period of work stoppage to request an equitable adjustment for costs attributable to the stop work order, such as costs associated with winding down and restarting work, standby costs that cannot be otherwise mitigated, and unabsorbed overhead costs.  Documentation is key to show that the contractor followed instructions from the government and mitigated its damages with respect to its employees, subcontractors, and vendors. Contractors should segregate their costs by contract.

Managing your workforce

• Communication and continued operations
  • Communicating early and often with your employees is critical to managing your workforce through a shutdown. Not only do contractors need to consider their impact on employee relations, retention, and morale, but contractors must also show the government that they have mitigated any unnecessary expenses in responding to the shutdown.
  • If you have not received a stop work order from your contracting officer, but your employees usually work onsite and are locked out of the government office where they typically work, you will need to determine an alternative plan, such as remote work, to continue performance until a stop work order is received. Reach out to your contracting officer regarding your options and document all communication.

Furloughs and employment law concerns

• If you do receive a stop work order, consider options that would have the least impact on your employees. Completing mandatory training modules or transferring them to uninterrupted projects may allow you to continue your productivity while contracts are paused. Hourly workers must be paid only for actual hours worked, unless you are subject to a contract or collective bargaining agreement stating otherwise. Employees classified as exempt under the Fair Labor Standards Act (FLSA) have specific protections against salary deductions for partially incomplete workweeks, even when it is prompted by a shutdown. However, exempt employees do not need to be paid for a full work week where no work takes place. Ensure employees understand that, when furloughed, they cannot complete any work-related tasks, such as checking emails or contacting clients, as that activity could trigger a payment requirement for a full week of work under the FLSA.

• If necessary, you may be able to direct your employees to use their PTO during this time. Furlough and mandatory unpaid leave or reduction in hours should be used as a last resort. In addition to the FLSA, contractors must comply with the federal WARN Act and any applicable state mini-WARN acts for mass layoffs. Some states require advanced notice to employees for temporary layoffs or shutdowns, like California. While most government shutdowns typically last only a few days, contractors should also consider what they will do if the shutdown lasts a few weeks, or longer.

Delays to bid protests and other deadlines

• The  U.S. Government Accountability Office (GAO) will be closed due to a lapse in appropriations. As part of this closure, there are several important things for government contractors to be aware of:
  • GAO’s Electronic Protest Docketing System (EPDS) will remain shut down, meaning no bid protest filings or documents will be accessible or available to file until the GAO reopens.
  • Deadlines for filing new protests that occur during the closure will be extended to the first day that GAO reopens, so prepare any pending filings now so they can be submitted on time in the narrowly extended filing window.
  • Other filing deadlines for agencies and private parties that occur during the closure will be extended by one day for every day that GAO is closed and protest decision deadlines will be tolled for a period of time equal to the length of GAO’s closure.
  • Filings for pending matters and new bid protests should be prepared to file quickly once the government approves a new appropriations bill and reopens.
• Although GAO is closed, the United States Court of Federal Claims remains open and can still receive bid protest filings during the shutdown.
• The government shutdown does not toll any applicable statutes of limitations for termination settlement proposals (TSP), claims, or appeals. Even if the contracting officer is furloughed and unable to receive the TSP or claim, contractors should still file them before the statute of limitations expires. The Civilian Board of Contract Appeals (CBCA), Armed Services Board of Contract Appeals (ASBCA), and Postal Service Board of Contract Appeals (PSBCA) all remain open during the shutdown and appeals should be filed by the required deadline.

Impact on procurement activity

• The government generally will not be able to make contract or task order awards or exercise options obligating new funds during the shutdown. Nevertheless, contractors should continue to comply with all proposal and protest deadlines.

• Contractors should also expect solicitation due dates and new awards to come rapidly once the shutdown is over. With potential reductions in force (RIFs) coming to different agencies, be prepared to receive new points of contact and processes when a new funding deal is reached.

In the event of federal layoffs during the shutdown

• As we saw earlier in 2025 with the DOGE cuts, a RIF at a federal agency during the shutdown could have a significant impact on contractors. Recent guidance from the Office of Personnel Management (OPM) clarified that RIF-related work, like preparing plans and issuing notices to impacted employees, is exempted from furloughs and can continue during the shutdown. However, the guidance also clarified the timeline that any RIF must follow:
  • Agencies are required to establish the “competitive area” for an RIF at least 90 days before the reduction takes effect.
  • All RIF notices must include the standard 60-day notice period for any impacted workers.
• Although narrow, these notice periods provide some lead time for government contractors to prepare for RIFs at agencies they work with or have obtained contracts through. Review all contracts and monitor the news and associated agency websites for updates about RIFs being issued. Be prepared for your point of contact at agencies to change and continue to document all your communications with the government.

Stay informed

Monitor the websites of the agencies you contract with to stay updated about agency-specific guidance that can help your organization make informed decisions about how to proceed during the different stages of the shutdown. Some agencies have already released instructions for contractors, and that number is likely to go up the longer the shutdown remains in effect.

In conclusion

Staying informed and organized is the best course of action for navigating a government shutdown. Communicate your expectations and plan of action with your employees and subcontractors to help preserve those relationships and avoid any potential wage or payment disputes. Track all expenses incurred as a result of the shutdown, along with all communication with the government to support any potential reimbursement claims. Stay patient and persistent as you keep moving forward, and be prepared to resume operations when a new appropriations deal is reached and the shutdown lifts.