If you've been following the news lately, "government shutdown" has been everywhere—trending on Google, dominating headlines, and filling social media feeds. For most Americans, a shutdown means closed national parks and delayed passport processing. But if you hold a federal contract—or you're considering entering the government marketplace—a shutdown means something very different.
It means uncertainty. Will your contract continue? Will you get paid? Should you keep working?
The good news is that not all contracts are affected equally during a shutdown, and there are specific steps you can take to protect your business. Whether you're a seasoned contractor or exploring government contracting for the first time, understanding how shutdowns work—and how to prepare for them—is essential to building a resilient federal business.
Let's break down what actually happens during a government shutdown, which contracts are most vulnerable, and how to build a preparedness plan with our Government Shutdown Checklist below that protects your business.
A government shutdown occurs when Congress fails to pass appropriations bills or continuing resolutions to fund federal agencies. When funding lapses, agencies are required to shut down all non-essential operations until Congress reaches a budget agreement.
Here's what that means in practice for your business:
During a shutdown, most agencies cannot obligate new funds or award new contracts. If you're in the middle of a proposal process or waiting for a contract award, expect delays. The procurement pipeline essentially freezes for everything except essential services.
Even if you're working on an active contract, payment processing can slow down or stop entirely. While you're generally entitled to payment once the government reopens, cash flow disruptions can create serious problems for small businesses operating on tight margins.
Contracting officers and program managers may be furloughed, which means your main points of contact might be unavailable. Even if your contract continues, getting answers to questions, submitting deliverables, or coordinating next steps becomes significantly harder.
This is the critical part that many contractors don't understand: not all federal contracts halt during a shutdown. Certain types of contracts—and certain types of work—continue uninterrupted. Knowing where your contract falls on this spectrum is the first step in shutdown preparedness.
The impact of a shutdown on your contract depends on three main factors: your funding source, your contract vehicle, and the nature of the work you're performing.
The most important question is whether your contract is already funded.
Fully Funded Contracts are those where the government has already obligated the money for your work. This typically happens with:
If your contract is fully funded, you're in a much stronger position. The money has already been set aside, and in most cases, your work continues during a shutdown.
Unfunded or Incrementally Funded Contracts are more vulnerable. These include:
If your contract depends on new appropriations that haven't been approved, your work may be suspended until Congress passes a budget.
The government categorizes work as either "essential" or "non-essential" during a shutdown.
Essential services continue because they protect life, property, or national security. This includes:
If your contract supports essential government functions, there's a higher likelihood your work continues—even if payment is delayed.
Non-essential services are suspended during a shutdown. This includes most administrative functions, research and development projects, routine maintenance, and services that don't have immediate safety or security implications.
The type of contract vehicle you're working under also influences your shutdown risk.
GSA Schedules are particularly interesting during shutdowns. While GSA itself may have limited operations, agencies can still place orders against existing GSA Schedule contracts if they have funds available and the work is deemed essential. The GSA Schedule vehicle provides flexibility that some other contract types don't.
IDIQs (Indefinite Delivery/Indefinite Quantity) and BPAs (Blanket Purchase Agreements) function similarly. The master contract remains in place, but whether individual task orders continue depends on their funding status and whether the work is essential.
GWACs (Government-Wide Acquisition Contracts) like NASA SEWP or GSA's OASIS+ follow the same principle. The vehicle itself doesn't shut down, but task order execution depends on funding and essentiality.
Direct agency contracts are the most variable. Your risk depends entirely on the specific agency, their shutdown plan, and whether your work is classified as essential.
Whether you're currently under contract or building your pipeline, having a shutdown preparedness plan protects your business from cash flow disruptions and helps you respond quickly when funding uncertainty arises.
Here's the truth that every government contractor eventually learns: funding uncertainty is part of the business model.
Shutdowns happen. Continuing resolutions are common. Budget negotiations create periodic uncertainty. If you want to do business with the federal government, you need to accept that these disruptions are possible and plan accordingly.
But here's the other truth: many businesses build successful, sustainable government contracting operations despite this uncertainty. They do it by understanding how the system works, diversifying their contract portfolios, maintaining financial resilience, and building strong relationships with agencies and program managers.
The businesses that struggle during shutdowns are often the ones that didn't prepare. They're undercapitalized, over-reliant on a single contract or agency, or unclear about their funding status until it's too late.
The businesses that thrive are the ones who treat shutdown preparedness as a routine part of their operations—not a crisis response.
If you're currently under contract, take action today: