Pillsbury Winthrop Shaw Pittman

US government shutdown: will performance of private contracts be excused?

By David M Lindley, Eric Fishman, Edward Flanders and Danielle Vrabie

With Congress unable to reach an agreement on a continuing resolution, the federal government shut down all ‘non-essential’ services on 1 October 2013. The shutdown will remain in effect until Congress passes appropriations legislation for fiscal year 2014. As the shutdown continues, performance under contracts between private parties may become difficult, if not completely unachievable. In rare cases, parties have options to excuse such performance under various contract excuse doctrines. This alert provides guidance on what private contracting parties affected by the shutdown should consider.

As the government shutdown continues, its impact is spilling over into the private sector. The energy, agriculture, steel, industrial, restaurant, retail, travel and tourism and hospitality industries have been or are expected to be getting hit hard, potentially throwing into jeopardy obligations under contracts between private parties. The breadth of the impact will only increase dramatically if the government defaults on its debts. Those private parties that have been affected by the shutdown (or, potentially, a default) ought to consider the various excuse doctrines.

Excuse doctrines — which include mutual mistake, impossibility or impracticability of performance, frustration of purpose and force majeure — permit a party to avoid its contractual obligations when a basic assumption of the parties in entering into the contract changes substantially…

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