When the Government Shuts Down, Smart Contractors Team Up

Let’s be real: a government shutdown can send small federal contractors into a tailspin. Invoices stall. Stop-work orders hit your inbox. Agency staff go silent. And suddenly, that solid pipeline you built starts to feel like a house of cards.

But not all small businesses are bracing for impact, some are partnering up and playing offense. Teaming and subcontracting, when done right, can help you stay afloat during the uncertainty and surge ahead when the lights come back on.

Here’s what you need to know right now.

A quick breakdown of what’s happening

During a federal shutdown, agency funding stops cold unless it’s classified as “essential.” That means:

• Active contracts may receive stop-work or termination-for-convenience notices

• Contract modifications and invoice processing grind to a halt

• Prime contractors are often left scrambling to notify subs and manage funding gaps

And unlike federal employees, your staff won’t be getting back pay. So if you're a subcontractor on a paused contract, you may be left holding the bag.

The FAR backs this up. FAR 52.232-18 (Availability of Funds) and FAR 52.249-2 (Termination for Convenience) let agencies suspend or end contracts with minimal payout. That’s not just frustrating, it’s financially dangerous if you’re not protected.

Why this matters for small businesses

Even in the middle of a shutdown, opportunities don’t vanish, they just shift. Here’s how:

• Big primes still have goals to meet. Statutory subcontracting targets don’t go away. In fact, GAO reports show many large contractors fall short on their small business goals.

• Subcontracting becomes a lifeline. Primes are looking for nimble, cost-effective partners to plug into new or restarted task orders without the delay or cost of onboarding full-time staff.

• Teaming offers flexibility. Rather than bid and hope, small firms can position themselves now with capability statements, NAICS alignment, and smart outreach to primes preparing for post-shutdown ramps.

If you’re SBA 8a certified or hold a women owned small business certification, you’re even more attractive right now. Agencies and primes alike lean heavily on set-aside partners to meet goals and keep work flowing with less red tape.

How to get in the game right now

Start with these smart, actionable steps:

1. Tune up your public-facing profiles

• Update your SAM.gov record and make sure your Dynamic Small Business Search (DSBS) profile is complete with keywords, NAICS codes, and performance history.

• Need help? That’s where SBA 8a certification assistance or women business certification support can give you a leg up in your visibility.

2. Sharpen your capabilities statement

• Keep it to 1–2 pages

• Make your differentiators pop

• Tailor it to your top NAICS codes for government contractors (especially those still active during shutdowns like 541611, 561210, or 236220)

3. Use official matchmaking platforms

• SBA’s SUBNet and GSA’s subcontracting directory are goldmines for identifying active primes with subcontracting plans.

• Pro tip: Filter by region or NAICS code and start a list of 5–10 primes to target with your capabilities sheet.

4. Network strategically

• Keep attending SBA, NDIA, NACA, or Chamber of Commerce events (yes, even virtual)

• Look for primes posting task orders or seeking surge support once funding resumes

• Use LinkedIn to stay visible and tag teaming-ready

5. Protect yourself contractually

• If you're entering a subcontract now, insist on clear flow-down terms from the prime, including stop-work protocols and payment protections

• Review whether the prime will push “pay-if-paid” terms (in some states, those are unenforceable)

• Ask for a copy of the Miller Act payment bond if it’s a construction contract over $100K

6. Document everything

• Track shutdown-related costs, hours, and communications in a dedicated ledger

• This sets you up for equitable adjustment claims and protects your rights if disputes arise

Let’s talk real strategy

Shutdowns don’t cancel the need for federal contracting certifications, they highlight their importance. If you're already in the SBA 8a certification process, or seeking disabled veteran small business certification, you’re in a strong position to team with primes who want quick access to set-aside benefits.

And if you're navigating the government contracting certification process for the first time, this is a perfect time to get your house in order. Whether it's through DSBS optimization, identifying the best NAICS codes for small business, or brushing up on government procurement processes, now is when future wins are shaped.

Wrap-up: Team now, surge later

Federal shutdowns slow the game, but they don’t end it. Smart small businesses use this time to:

• Deepen relationships with prime contractors

• Prepare marketing materials and compliance documents

• Pursue set-aside-friendly partnerships and get proposal-ready

The winners aren’t always the ones who worked during the shutdown. They’re the ones who were ready when it ended.

Ready to build momentum? Read our related post on how to protect your contracts and cash flow during a government shutdown. It’s packed with tips on invoicing, financing, and risk reduction while you wait for the gears of government to turn again.

If you aren't a Squared Compass partner, what are you waiting for? From getting your business set up with specific government set aside programs at both the State and Federal level, to being empowered by a Fractional Capture team to win government contracts, to receiving tailored government contract opportunities Squared Compass delivers immense value which helps propel our partners to success. Schedule a chat with our team today.