How Grantees Can Prepare for a Federal Government Shutdown
Federal funding is set to lapse with the expiration of the Fiscal Year 2025 Continuing Resolution at the end of September. This means that, absent new funding legislation, a government shutdown could occur on October 1, 2025, the first day of the federal government’s new fiscal year.
While many shutdowns have lasted mere days, the longest in history, from late December 2018 to late January 2019, ran for 35 days. What might a shutdown mean for recipients of federal financial assistance?
As a starting point, a grantee’s notice of award obligates the full amount of grant funding awarded. Absent a barrier to performance (such as inaccessibility of federal lands or facilities), grantees generally be able to continue performing and incurring allowable costs during a shutdown.
That said, while federal grantees are less likely than federal employees to be directly impacted by a lapse in federal funding, the possibility of a shutdown should not be taken lightly. In preparing for a possible shutdown, federal grantees should consider two areas of potential impact: (1) administrative grant management challenges; and (2) potential physical hurdles to project accomplishment.
The following table provides key considerations to assist in planning and preparing for the possibility of a shutdown:
| Government Shutdown Issue | Considerations |
| Administrative Grant Management Challenges | |
| Most grant managers in federal employ will be furloughed | Expect longer delays, at best, in prior approvals for routine matters. At worst, expect prior approvals will not be available. For pending new awards or continuation applications, consider requesting (if possible) that award decisions be fast-tracked so that funds are obligated and available prior to any shutdown. |
| Payment systems | Payment systems through which grantees draw down federal funds (e.g., PMS and ASAP) will likely continue to be operational during a government shutdown. However, payment systems are of such import that grantees should confirm their ongoing availability with their grants officer/project officer in advance. Another source of delay would be inability of federal employees to process and approve drawdown justifications during shutdown of federal operations. |
| Project Accomplishment Challenges | |
| Access to Federal Facilities and/or Lands | Where project activities take place in federal facilities or on federal lands, grantees should consider potential barriers to access. Inaccessibility will likely occur on a case-by-case basis, dependent on factors including: the funding agency, the nature of the facility and/or land, and the extent to which federal staffing is essential to day-to-day access. If access to federal facilities or lands is needed by any contractors engaged to support grant-funded activities, grantees should also consider the impact to their contractual obligations. |
| Project performance delay | Keep in mind that, if access to federal facilities and/or lands inhibits project performance, federal grantees can:
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| Impact of any delay on “deliverables” | Generally, grants are best-efforts agreements, i.e., the grantee is compensated for best efforts in performance of the agreed activities, always taking into account whether a grantee’s costs of doing so are reasonable. Still, grantees should consider reviewing the terms of their grant agreements for any indication of firm deliverable obligations. If such language appears in an agreement, it could later be used to disallow costs for incomplete deliverables (despite the typical baseline “best efforts” rule). |
| Impact of any delay on current use and associated cost of personnel | A grantee’s lack of access to federal facilities and/or property may result in grantee personnel unable to perform their typical project-related work. In this case, the salaries/wages of such employees will not likely be chargeable to the awards that typically fund their work. All costs charged to an award must be both reasonable and allocable to that award. Where work depends on access to federal property, personnel costs are likely to be considered either unreasonable or not properly allocable to the award. Grantees facing such a circumstance should consider the extent to which it might be possible to reorganize staff activities to take advantage of a possible carry-over request or no-cost-extension for when the government re-opens. |
| Impact of any delay on indirect costs | If a shutdown lasts for, at most, a week or two, the impact to indirect costs will be negligible. If a shutdown persists for longer, any resulting decrease in direct cost activities may knock a grantee’s indirect rate out of alignment with actual experience of costs incurred in the current period. Consider engaging with your finance team in advance of any anticipated shutdown to plan for this possibility. Should project activities be suspended for a lengthy period, adjustments should be made. |
Finally, with a looming shutdown creating additional risk that grantees may not have ready access to federal electronic payment systems, grantees may consider submitting an advance payment request consistent with the grant’s terms and conditions and the requirements of 2 C.F.R. § 200.305(b), including that drawdown be limited to the minimum amounts needed to cover allowable costs of obligations already incurred, be timed with grantee’s actual, immediate cash requirements, and that grantee disburse payments without undue delay. In addition, if appropriate, eligible grantees may request that award funds be provided on a working capital advance basis.
Feldesman attorneys are closely following developments out of Capitol Hill regarding funding for the new federal fiscal year and their implications for federal financial assistance programs. If you have questions, please contact Phillip Escoriaza.
