In light of the recent and longest government shutdown in U.S. history, Law360 featured comments from Shareholder Ben Wheatley about how construction companies can prepare and weather another government shutdown.
“Talking with subcontractors is important too, because it’s too risky to leave them in the dark about what a shutdown means for the project they’re working on,” said Wheatley. “What you don’t want is people picking up their toys and going to other projects because getting them back is going to be a nightmare and cost more money.”
The full Law360 article can be viewed below or by clicking here.
How Construction Cos. Can Weather Another Gov't Shutdown
The longest U.S. government shutdown in history is over, but construction contractors and their attorneys shouldn’t take it easy.
Instead, they should take decisive steps to plan for future shutdowns — the next may be three weeks away — by talking with government officials overseeing their work, checking their contracts and potentially heading to the bank to get some financial flexibility, attorneys said.
“The good thing is they’re hardly ever a surprise,” said Gunjan R. Talati, a partner at Kilpatrick Townsend & Stockton LLP.
A number of attorneys identified communication as the most important part of planning for and surviving a shutdown, whether a contractor talks with the government agency overseeing its job or with its subcontractors.
Government contractors should discuss shutdowns with their contracting officers to get a clear picture of how they’re expected to act if the agency they’re working for closes its doors. That conversation may also give the company a chance to let officials know what costs it may incur during a shutdown, Talati said.
If a federal contractor is unable to work during a shutdown, it could attempt to get the U.S. to cover the cost of paying its idle workers. With such an agreement in place, the government would reimburse the company for those expenses, but without one, the company risks not getting paid for that time, according to Edward V. Arnold, an associate at Seyfarth Shaw LLP.
Of course, during a shutdown, affected federal employees may not be in the office, making it difficult or impossible to reach them with concerns about how a project will be affected or should proceed.
Any contractor with concerns that weren’t addressed prior to a shutdown and can’t be discussed during the closure should contact their contracting officer the instant the government goes back online, said Alexander B. Ginsberg, chair of Pillsbury Winthrop Shaw Pittman LLP’s bid protest team.
Talking with subcontractors is important too, because it’s too risky to leave them in the dark about what a shutdown means for the project they’re working on, according to Benton T. Wheatley, managing shareholder of Munsch Hardt Kopf & Harr PC’s Austin office.
“What you don’t want is people picking up their toys and going to other projects because getting them back is going to be a nightmare and cost more money,” he said.
Open Those Contracts
Whether they’re talking with other parties or not, construction companies and their attorneys should review any contracts that may be affected by a shutdown. Specifically, they should figure out if they’re required to continue working, what rights they have during such a situation and how they’re getting paid, lawyers said.
Type of payment is key because it affects what types of costs incurred by federal contractors during a shutdown can be reimbursed by the government. And if a contract isn’t fully funded, the company might be forced to stop working because the government can’t promise to spend money that hasn’t been appropriated, Arnold said.
Subcontracts are also important, as those may dictate whether a contractor can order work to stop, Talati said.
If a government contractor can’t stop its subcontractors from working and they argue they should keep getting paid, the main contractor can end up in a tough spot where it’s not earning anything on a job it’s spending money on, he explained.
“Now you’re getting squeezed on both ends,” Talati said. “It’s very important that you examine your subcontracts to see if they’ve got these clauses and provisions that allow you to protect yourself in the event of a shutdown.”
If they don’t, they should be changed, if possible. Any modifications, of course, depend on the terms of the subcontracts themselves and how willing a subcontractor is to work with the main contractor, he added.
Companies can also see if their agreements allow them to ask about the project owner’s finances. If so, they can ask for proof that the project will continue to be funded. Even if such questions risk an established relationship with the owner, they’re important to ask, attorneys said.
And if a shutdown happens and a contractor does stop work on its project, it’s essential for it to keep track of expenses incurred during the closure, attorneys said.
“It’s really critical that companies track every penny of their costs that are related to what’s happening,” said Scott M. Heimberg, a partner at Akin Gump Strauss Hauer & Feld LLP. “You may not be able to recover it all, but certainly if you don’t have records it’d be very difficult to recover it.”
Open a Line of Credit
When the metaphorical funding faucet shuts off during a shutdown, contractors who have money to spare can wait it out better than their cash-strapped peers. That’s why it may make sense for contractors to get a bank to loan them money to cover whatever they need to pay for during the closure, attorneys said.
The ability to pay for work becomes more important the further down the project hierarchy a company is because the smaller they are, the higher the odds are that they’re operating month-to-month and need those regular paychecks, Wheatley said.
“If they’re able, they should be doing anything they can to keep their subcontractors funded so they can finish the project,” he said of contractors.
But because it takes time to set up a line of credit, it should be done ahead of time, attorneys said. They noted that now, in the wake of one shutdown and with the possibility of another one looming, would be a good time to contact banks.
“Getting this set up beforehand can be a huge administrative relief, as anyone who wants to open a line of credit during the shutdown may find banks overwhelmed as everyone else attempts to do the same thing,” Arnold said. “Having a good relationship with your lender and understanding how much credit you can tap, if need be, is critical.”
By: John Kennedy