What Happens to Your Federal Grants and Contracts During a Government Shutdown

When a lapse in federal funding occurs—commonly known as a government shutdown—federal grants and contracts are directly impacted by the Anti-Deficiency Act. To understand the implications of a government shutdown, there is an OMB memo from a previous shutdown that includes FAQs for addressing how grants and contracts are affected during a lapse in funding.

Key Points from the FAQ:

• No New Obligations: Agencies cannot issue new grants or contracts unless tied to emergencies or essential services.
• Ongoing Work: Contractors and grantees may continue performance if it does not require significant federal oversight.
• Suspensions Possible: Longer shutdowns may force suspension of work—especially if supervision or federal facilities are essential.
• Administrative Activities Halted: Routine grant and contract administration cannot proceed, except for essential functions.
• Agency Responsibility: Each agency must determine whether continued performance is legally required.
• Delayed Payments: Federal employees generally cannot be excepted from furlough to process payments. As a result, payments to contractors and grantees will likely be delayed. For more on how federal workforce operations are affected during a shutdown, see the OPM memo issued October 1, 2025, which provides special instructions for agencies regarding pay, leave, and furlough procedures.

Practical Takeaways for Contractors and Grantees

1. Pre-Obligated Funds: If your contract or grant was fully obligated before the shutdown, you may continue work without further direction (e.g., no need for a new “notice to proceed”).
2. Worksite Limitations: If your work requires access to federal facilities, consider alternative tasks that can be performed offsite or through non-federal resources.
3. Cooperative Agreements: These often require close government supervision. Extended shutdowns typically force suspension of this work.
4. Communication is Key: Stay in close contact with your federal awarding or contracting agency to clarify expectations and avoid misunderstandings.
5. Expect Delays: Even if performance continues, payment processing will likely be delayed until federal employees return to work.

Conclusion

Government shutdowns create uncertainty, but understanding the Anti-Deficiency Act, essential service exemptions, and OMB guidance can help contractors and grantees navigate funding lapses. The best strategy is to remain proactive: confirm your obligations with your agency, assess whether performance can continue without federal oversight, and prepare for delayed payments.

Contact

Paul H. Calabrese

Principal, Outsourced Accounting & Advisory Services