Government Shutdowns and Stop-Work Orders for Software Companies: Protect Your Contract

Every federal software contract rests on money Congress has appropriated and an agency has obligated. When that money stops, because appropriations lapse, because a contract was only partly funded, or because the agency needs to pause the work, the contract does not simply carry on as a commercial subscription would. The rules that decide what happens next are written into your contract clauses and into appropriations law.

This guide covers what a government shutdown means for a contractor, how stop-work orders work, what the Limitation of Funds clause does on incrementally funded contracts, and the steps a software company should take to protect its position before, during and after a stoppage. It is written for founders, finance leads and delivery managers running a federal contract.

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Why funding controls performance

Two parts of the Antideficiency Act shape everything below:

• No obligation without an appropriation. Under 31 U.S.C. 1341, a federal official may not obligate or spend money beyond what Congress has made available, or before it has been made available.
• No voluntary services. Under 31 U.S.C. 1342, an agency may not accept voluntary services except in emergencies involving the safety of human life or the protection of property.

Together they mean an agency cannot commit to buy what it has no money for, and cannot accept work you do on the hope of being compensated later. Our guide to software license terms in federal contracts covers how the same rules affect automatic renewal and indemnification clauses, and the federal fiscal year guide covers how appropriations and continuing resolutions set the calendar.

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What a shutdown is

A shutdown is a lapse in appropriations. It happens when a fiscal year begins on October 1, or a continuing resolution expires, without new appropriations or another continuing resolution in place. The lapse that began on October 1, 2025 lasted 43 days, the longest on record.

During a lapse, each agency follows a contingency plan prepared under OMB’s annual budget circular, in its section on agency operations in the absence of appropriations. The plans separate excepted activities, which continue, from everything else, which stops. Employees who are not excepted are furloughed.

Not every agency or account lapses at once. Some programs run on multi-year or no-year appropriations, fees or other funding that remains available, and some agencies may have full-year appropriations enacted while others do not. Whether a shutdown touches your contract depends on which appropriation funds it.

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What happens to your contract during a shutdown

Funded contracts generally continue. If the agency obligated funds on your contract before the lapse, those funds remain available, and you are generally expected to keep performing. A shutdown is not, by itself, a reason to stop work. Stop only when the contracting officer tells you to in writing.

New obligations generally stop. An agency generally cannot use a lapsed appropriation to award a new contract, issue a new order, exercise an option or add incremental funding. FAR 17.207 requires that funds be available before an option is exercised. If your option or renewal falls inside the lapse, expect it to wait.

Work that depends on the government may halt. Furloughed staff cannot review deliverables, grant system access, attend sprint reviews or approve invoices, and a closed building is closed to contractor staff too. When performance cannot continue, the agency will usually issue a stop-work order for the affected work.

Invoices can be delayed. The staff who accept deliverables and process payments may be furloughed. Keep submitting proper invoices on schedule so the record is clean when they return. Our guide to federal invoicing and prompt payment covers the invoicing systems.

There is no back pay for contractors. The Government Employee Fair Treatment Act of 2019 guarantees retroactive pay for federal employees after a lapse. There is no equivalent statute for contractors or their staff. What you recover depends on your contract clauses.

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Stop-work orders

FAR 52.242-15, the Stop-Work Order clause, lets the contracting officer order you in writing to stop all or part of the work for 90 days after the order is delivered, plus any further period both parties agree to. It is common in negotiated fixed-price and cost-reimbursement contracts. Many commercial contracts under FAR Part 12 do not include it, so check your contract’s clause list.

Under the clause:

1. You must comply immediately and take reasonable steps to minimise the costs allocable to the stopped work.
2. Within the 90 days, or any agreed extension, the contracting officer must either cancel the order or terminate the stopped work under the termination for convenience or default clause.
3. If the order is cancelled or expires, you resume work. The contracting officer must make an equitable adjustment to the schedule, the price or both if the stoppage increased your time or costs, and you assert your right to the adjustment within 30 days after the stoppage ends. The contracting officer may accept a later request before final payment, but do not rely on that.
4. If the stopped work is terminated for convenience, reasonable costs caused by the stop-work order are allowed in the termination settlement. Our termination for convenience guide covers the settlement process.

If your contract has no stop-work clause and the agency directs you to stop, ask the contracting officer in writing which clause the direction relies on. A direction to stop, delay or change the work can be a change under the contract, and our guide to contract modifications covers the changes clause.

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Limitation of Funds and incremental funding

Some contracts are funded in increments. The agency obligates part of the total value at award and adds funds as they become available. That matters most on cost-reimbursement contracts, and it can matter on fixed-price contracts too.

• Limitation of Funds, FAR 52.232-22, applies to incrementally funded cost-reimbursement contracts. You must notify the contracting officer in writing whenever you have reason to believe that the costs you expect to incur in the next 60 days, added to costs already incurred, will exceed 75 percent of the funds allotted so far. The government is not obligated to reimburse costs beyond the allotted amount, and you are not obligated to keep performing beyond it.
• Limitation of Cost, FAR 52.232-20, is the counterpart for fully funded cost-reimbursement contracts, with the same 60-day, 75 percent notice against the estimated cost.
• Fixed-price contracts are generally fully funded at award. Where a Department of War contract is incrementally funded on a fixed-price basis, DFARS 252.232-7007, Limitation of Government’s Obligation, sets the rules.

During a shutdown or a long continuing resolution, the next increment may not arrive on time. Track your funded amount against your burn rate every month, send the notice when the threshold is near, and do not perform past the allotted amount on the assumption that funds will follow. Our guide to federal contract types covers how each type is priced and funded.

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SaaS subscriptions when the money stops

A subscription has its own exposure because the service runs continuously.

• Inside a funded period, keep the service running. If the agency has obligated funds for the subscription period, switching the service off because of a shutdown can put you in breach. Keep operating, keep logs and keep supporting the users who are still working.
• At the end of a funded period, do not assume a renewal. If the period of performance ends during a lapse and the next period or option is not funded, service you provide afterwards may count as a voluntary service the agency cannot accept. Before the period ends, ask the contracting officer in writing how the agency wants the gap handled, whether through a short extension, a bridge or a suspension of service.
• Take direction only from the contracting officer. A program manager or user who asks you to keep the service running cannot obligate funds. Only a contracting officer can bind the government, and work done on an unauthorized commitment depends on a later ratification under FAR 1.602-3 that may never come. Our guide to federal buyer roles explains who holds that authority.
• Plan for data and access. Agree in advance what happens to agency data and user access if service is suspended, so that a stoppage does not become a security or records problem.

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What to do before, during and after a stoppage

Before:

• Map each contract to its funding. Know the appropriation behind each contract and order, the funded amount, the period of performance and the next option or increment date.
• Read the clauses. Check for 52.242-15, 52.232-20, 52.232-22 or 252.232-7007, and the termination and changes clauses.
• Watch the calendar. Shutdown risk peaks around October 1 and when a continuing resolution expires. Avoid scheduling an option exercise or renewal into that window if you can.
• Plan your cash. Payments can stop for weeks. Know how long you can carry your federal delivery team without them.

During:

• Get direction in writing from the contracting officer, and follow it. If you have no direction, keep performing funded work that does not depend on government staff or facilities.
• Track stopped work separately. Open separate charge codes for idle time, demobilisation and remobilisation, and record what you did to reduce costs.
• Keep invoicing for work performed and accepted.
• Keep employees off-site where facilities are closed, and do not let staff work on unfunded tasks at a user’s request.

After:

• Assert your adjustment within 30 days of the end of the stoppage when your contract includes 52.242-15, and price it from the records you kept. Our guide to contract claims and requests for equitable adjustment covers the process.
• Confirm the new schedule in a modification, including revised delivery dates and any extended period of performance.
• Chase delayed actions. Options, renewals and new orders that were held during the lapse need someone to restart them.

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What this means for a software company

• A shutdown pauses new money, not funded work. Keep performing unless the contracting officer tells you to stop.
• Only the contracting officer can stop or start the work. Get every direction in writing.
• Know your clauses before you need them. The stop-work, Limitation of Funds and termination clauses decide what you recover.
• The 30-day window is short. Track stopped work from day one so you can price an adjustment on time.
• Do not run unfunded service. Service past a funded period without a signed order or modification is service the agency may not be able to compensate.
• Read the current rule text. The FAR is being rewritten under the Revolutionary FAR Overhaul, so clause numbers and wording may change, and agency contingency plans change between lapses. Confirm the clauses in your contract, and get advice from counsel on a stoppage with real money at stake.

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Where this fits

Contract administration is part of what federal buyers look at when they compare vendors, alongside your registration, your compliance posture and your record of federal work. Score your company’s federal readiness to see how your profile looks across the categories federal buyers review.

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Related reading

• The Federal Fiscal Year for Software Companies: Budgets, CRs and Q4
• Termination for Convenience and for Cause: How Federal Software Contracts End Early
• Contract Claims and REAs for Software Companies: The Contract Disputes Act, Explained
• Contract Modifications for Software Companies: Bilateral, Unilateral and the Changes Clause
• Federal Invoicing for Software Companies: Prompt Payment, IPP, WAWF and Annual Billing
• Glossary: IDIQ · Task Order · SAM.gov