Can Federal Contractors Sue When Shutdowns Delay Their Payments?

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During the 43-day shutdown that ended in November 2025—the longest in American history—contractors faced unpaid work and lost revenue. For contractors who build ships, clean federal buildings, provide IT services, or staff national laboratories, this means work stops—or continues without pay. Federal employees have guaranteed back pay protections, but contractors have no such protection. They’re left holding invoices the government can’t legally pay, watching their cash reserves drain, and wondering: Can we sue?

The answer is yes. Sort of. Sometimes. It depends.

That ambiguity has real consequences. Small subcontractors went under. Workers burned through savings. And the legal remedies that theoretically exist proved maddeningly difficult to access in practice.

The Statutory Trap: When Two Laws Collide

Federal contractors find themselves caught between two statutes that fundamentally contradict each other. The Anti-Deficiency Act—codified in its modern form in 1982 as Title 31 of the U.S. Code—makes it illegal for government officials to spend money Congress hasn’t approved. The government cannot pay contractors during a shutdown. The law is so strict that violating it can result in criminal penalties, including fines and imprisonment.

When Congress resolved this conflict for federal employees, it created specific protections: employees get back pay, automatically, once funding resumes. Contractors were deliberately excluded from these protections. The rationale: contractors are businesses, not employees. They can negotiate terms. They can sue.

The government’s position in shutdown litigation has been consistent: the Anti-Deficiency Act made payment illegal, so we didn’t break our contract. We didn’t refuse to pay you—we were legally prohibited from paying you.

Courts have been inconsistent about whether that defense works.

The Contract Disputes Act: Filing Requirements and Risks

Before suing the federal government, contractors must go through the Contract Disputes Act’s administrative process. This isn’t optional. Filing a lawsuit in federal court like you would against any other customer who didn’t pay their bill isn’t an option.

The process starts with a written claim to the contracting officer—not your program manager, not the agency head, but the specific person designated as the contracting officer on your agreement. Get this wrong and your claim is invalid before it starts.

The claim must state an exact dollar amount. Not “approximately $500,000” or “between $400,000 and $600,000.” A specific number. This requirement creates an immediate problem for those still tallying shutdown costs: quantify damages before fully understanding them, or risk missing filing deadlines while waiting for complete information.

For large claims, contractors must sign a sworn statement saying the claim is truthful and accurate, made in good faith, and that the supporting data are accurate. Submit an inflated claim and the risk isn’t losing the case—it’s fraud charges.

When the contracting officer denies your claim—or when silence gets treated as a denial—two options exist: appeal to a government board that reviews contract disputes, or file suit in the Court of Federal Claims. Choose one. Switching later if things aren’t going well isn’t possible.

What Happened When Contractors Sued Over Past Shutdowns

Past shutdowns have produced mixed results for contractors seeking compensation. The government’s standard defense relies on sovereign immunity: when the government exercises its sovereign powers—like shutting down due to a budget impasse—contractors have no recourse for incidental harm.

Contract language can make the difference. When specific agreements explicitly assign the risk of facility closures or work stoppages to the government, the sovereign immunity defense may not apply. Language can override the government’s sovereign immunity defense, but only if negotiated before the shutdown and only if the contracting officer agrees to include it.

The 2013 shutdown produced more complicated results. About 25,000 federal employees who worked without pay during the October 2013 closure filed a class action claiming the government violated the Fair Labor Standards Act by not paying them on their regularly scheduled payday. In 2014, Judge Patricia Campbell-Smith ruled in their favor, awarding automatic penalties equal to the federal minimum wage for each hour worked during the payment delay.

The government appealed. Years later, the Federal Circuit reversed the decision, holding that the government’s obligation to pay employees promptly under the FLSA was superseded by the Anti-Deficiency Act’s prohibition on spending unauthorized funds. When the Anti-Deficiency Act prohibits payment, the government didn’t break the law by not paying, because the law said it couldn’t pay.

This reversal closed the FLSA pathway. If federal employees couldn’t recover under the FLSA when the government delayed their paychecks, contractors—who have even weaker claims to employee protections—certainly couldn’t.

Subsequent shutdowns generated similar litigation with similar results. Federal employee unions filed suit, the government moved to dismiss based on the Anti-Deficiency Act defense, and the cases ground through the courts for years. Most businesses didn’t join the litigation—the legal fees and uncertain outcomes made it too risky.

The Stop-Work Order Clause: Your Best Bet

The Federal Acquisition Regulation includes a stop-work order clause that makes it easier to get paid for shutdown costs than general breach theories.

This clause allows the contracting officer to order a halt to work temporarily. When that happens, the business is entitled to compensation for extra costs caused by the work stoppage. That includes idle labor costs, the expense of laying off workers and then rehiring them, and the costs of restarting work after the stoppage ends.

The catch: the contracting officer must formally order work to stop. During most shutdowns, they don’t. Work stops. Facilities close. Contracting officers go home. Nobody formally orders anything.

Smart businesses request a stop-work order in writing as soon as a shutdown appears imminent. Send an email to the contracting officer: “Given when Congress doesn’t approve funding, please issue a stop-work order so we can document costs and seek compensation for extra costs.” Get it in writing, or at least create a written record that the request was made.

When the contracting officer issues the order—or if an argument can be made that the shutdown constituted an implied stop-work order—a much stronger claim exists. The FAR clause explicitly authorizes recovery. The argument isn’t about whether the government breached; it’s about calculating what the regulation says you should be paid.

Businesses that documented their stop-work requests and calculated their costs methodically have had more success recovering shutdown losses than those who simply waited for the government to reopen and then submitted vague claims for “shutdown damages.”

Prompt Payment Act Interest: The Remedy Nobody Remembers

Even if the full amount of shutdown losses can’t be recovered, interest on late payments almost certainly can be.

The Prompt Payment Act requires federal agencies to pay within 30 days of receiving a proper invoice. Miss that deadline and the government owes automatic interest at a rate set quarterly by the Treasury Department. For the first half of 2026, that rate is 4.125% annually.

The interest begins automatically. Requesting it isn’t necessary. Proving the government acted in bad faith isn’t necessary. The payment was late; interest is owed.

To claim Prompt Payment Act interest, send a written demand to the payment office specifying which invoices are late and calculating the interest using Treasury’s published rates. If the government doesn’t pay within 10 days, file an additional claim for a “failure to pay interest” penalty.

The Subcontractor Problem: No Contract, No Lawsuit

If you’re a subcontractor—meaning there’s an agreement with a prime, not directly with the federal government—the situation is worse.

You can’t sue someone you don’t have a contract with. The government’s agreement is with the prime. Your agreement is with the prime. Therefore, suing the government isn’t possible.

The only recourse is suing the prime for breach of your subcontract—which means pursuing the case under state law in state or federal district court, not through the specialized federal contracting process. If the prime is also struggling financially because the government isn’t paying them, collecting a judgment becomes difficult.

There are narrow exceptions. If your subcontract includes a clause that passes terms down to subcontractors that incorporates the prime’s disputes clause and explicitly allows bringing claims against the government, you might have the legal right to sue. If the prime requires the government to pay directly for certain costs, qualification as someone who benefits from an agreement even though they didn’t sign it might be possible.

Most subs are simply stuck. During recent shutdowns, small subs reported the most severe cash flow crises. Primes, facing their own payment delays from the government, stopped paying subs. The subs had no direct remedy against the government and limited practical remedies against primes who were themselves in financial distress. Several small infrastructure and defense subs went bankrupt waiting for payment that eventually came—but came too late.

What About Insurance?

Businesses sometimes assume their payment bonds or business interruption insurance will cover shutdown losses. They won’t.

Payment bonds guarantee that if a contractor fails, someone else will pay workers and suppliers. They protect against default, not government default. A government shutdown isn’t the contractor’s fault; it’s something the government did. The bond doesn’t cover it.

Business interruption insurance typically excludes losses caused by government action. The policies are designed to cover things like fires, floods, or equipment failures—events that physically prevent business operations. A government shutdown is a fiscal problem, not a physical one. Most policies explicitly exclude “government orders” from coverage.

Insurance for political instability in foreign countries doesn’t help either. These policies typically have waiting periods before coverage kicks in, and they’re designed for long-term instability in foreign countries, not temporary U.S. budget crises.

Businesses bear shutdown risk directly, without insurance protection. If money gets lost during a shutdown, recovery happens through litigation against the government or the loss gets absorbed.

Negotiating Protection Before the Shutdown Happens

The most effective strategy for dealing with shutdown payment delays is preventing them through negotiation—before signing, before the shutdown happens, before crisis mode hits and figuring out how to make payroll becomes urgent.

Sophisticated businesses now routinely propose modifications that explicitly address shutdown risk. The most effective approach: changing the contract language to explicitly say “government facility closure due to when Congress doesn’t approve funding” triggers compensation.

Instead of leaving it ambiguous whether a shutdown constitutes a stop-work order, the agreement states it clearly: if the government shuts down and access to the work site is unavailable or performance is impossible because the government isn’t available to accept deliverables, claiming all associated costs is permitted.

Another approach: in contracts where the government pays back all approved costs, negotiate language stating the government will reimburse all allowable costs regardless of appropriations status. This shifts the appropriations risk entirely to the government. The government often resists this language, but if they won’t accept it, pricing the shutdown risk into the proposal becomes possible—effectively charging a premium to cover the expected cost of future shutdowns.

Construction firms have had success adding “government shutdown” explicitly to clauses that excuse delays caused by events beyond control. Standard provisions excuse performance delays due to events beyond the parties’ control—wars, natural disasters, strikes. But courts interpret these clauses narrowly. Unless “government shutdown” is explicitly listed, courts often won’t treat it as such an event.

Adding the language provides schedule relief: if a shutdown delays performance, you won’t be penalized for missing deadlines. That doesn’t guarantee cost recovery, but it protects against termination for cause and the associated penalties.

The challenge: contracting officers often resist these modifications, arguing they’re unnecessary or that the standard FAR clauses already provide adequate protection. They don’t. But negotiating these protections requires leverage—either being the only company that can do this work, or willingness to walk away from agreements that don’t adequately provide protection.

Most small businesses lack that leverage.

The Six-Year Deadline You Can’t Miss

Every claim under the Contract Disputes Act must be filed within six years from the date when you knew the government owed you money.

For shutdown payment delays, the clock starts ticking when your invoice is 30 days overdue. If your invoice was due 30 days after the government accepted your work, the clock begins on day 30—even if the government hasn’t paid yet, even if informal negotiation continues, even if waiting to see whether the contracting officer will voluntarily resolve the issue seems reasonable.

Miss the six-year deadline and your claim is barred. Forever. No exceptions, no extensions.

Six years sounds like plenty of time. In practice, it goes faster than expected. Businesses often spend months or years in informal negotiations, assuming they’re preserving their rights. They’re not. The statute of limitations runs regardless of whether active litigation is happening or passive hoping that the government will do the right thing.

For those affected by recent shutdowns, the deadline approaches faster than expected. Waiting until the last moment to file a claim is a mistake. Memories fade. Documentation gets lost. Government personnel retire or transfer. The longer the wait, the harder proving the case becomes.

The practical advice from government contracts attorneys: file your CDA claim within two to three years of the shutdown, even if negotiation continues. Settlement after filing is always possible. But filing after the deadline expires isn’t possible.

Current Status and Outlook

The federal government continues to face recurring budget crises. Shutdown procedures have become increasingly frequent. Businesses are facing the same impossible choice: work without pay and hope for eventual recovery, or stop work and risk losing everything entirely.

The legal situation hasn’t improved. The Federal Circuit’s decision limiting FLSA-based recovery still stands. The Anti-Deficiency Act still provides the government with a powerful defense against liability. Congress still hasn’t extended back pay protections the way it did for federal employees decades ago.

Those pursuing claims from past shutdowns are currently in the CDA administrative process—filing claims, waiting for contracting officer decisions, preparing appeals. The Civilian Board of Contract Appeals saw a 35% increase in new appeals in fiscal year 2025, likely reflecting the surge in shutdown-related disputes.

Industry groups like the Professional Services Council have called for systemic reforms: automatic temporary funding that keeps government running if Congress doesn’t pass a budget, statutory back pay protections, or at minimum, clearer rules about what contractors can do during shutdowns.

None of these reforms have gained traction in Congress.

Businesses continue operating in a system that treats them as people owed money with no guarantee of getting paid—entitled in theory to payment for work performed, but lacking practical remedies when payment doesn’t come. The legal mechanisms exist: the Contract Disputes Act, the Court of Federal Claims, stop-work order clauses, Prompt Payment Act interest. But these mechanisms are slow, expensive, uncertain, and often inadequate to make anyone whole.

The answer to “Can federal contractors sue when shutdowns delay their payments?” is technically yes. CDA claims can be filed. Appeals to Boards of Contract Appeals are possible. Litigation in the Court of Federal Claims is an option. Some costs can be recovered under some circumstances if the right language exists and sufficient documentation is available and enough cash reserves exist to survive the years of litigation.

But “can sue” and “can realistically recover” are different questions. For most—especially small businesses and subs—the realistic answer is: some of what’s owed will arrive, eventually, if waiting and fighting for it is affordable.

That’s not a legal remedy. That’s a gap in the law that businesses fall through every time Congress fails to pass a budget on time.

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