The US government shutdown ends

On 25 January 2019 the partial shutdown of the US federal government ended on a temporary basis. It had lasted 35 days, the longest on record until then. During that time, part of the federal services was paralysed and part of their staff worked unpaid or simply could not work, until a temporary solution was reached. In practical terms, a shutdown like this is measured not only in days but in procedures that do not advance and decisions left waiting for normality to return.

The episode had more to do with politics than with the economy, but its consequences were very practical. When an administration stops, it is not only those who work in it who suffer: so do the citizens and companies waiting for a licence, a permit or official information. For anyone doing business with the United States, it was a reminder that a third party’s calendar is also part of the risk. Companies that work with the American administration usually feel the effect with some delay, when accumulated deadlines begin to affect their own schedules.

What a shutdown is

In the United States, the federal government needs Congress to approve its funding. When there is no political agreement to fund part of it, those services stop working and part of their staff go unpaid or without work. This is what is known as an administrative shutdown.

It is not a state bankruptcy or a debt crisis: essential services are usually maintained and the private economy keeps running. It is, rather, a halt to public activities that affects paperwork, permits and services, and whose length depends entirely on when a deal is struck between the political forces. In companies with public-sector customers, those delays can turn into invoices that are paid later and sales that are put off.

An effect that travels

A partially paralysed administration can delay licences, authorisations or official information. Companies that depend on those procedures feel it quickly, as do those that sell to public bodies and their employees, whose income is disrupted while the shutdown lasts. The longer it goes on, the more pending matters pile up.

For those operating from abroad, the effect shows up mainly as slower and less predictable timelines. A European exporter waiting for a permit, an investor needing an authorisation or a company signing a contract with a public body can see the calendar slip without having been able to do anything to prevent it. If the activity depends on a permit or an inspection, it is best to submit the documentation as early as possible and keep proof of the date of submission.

The word ‘temporary’

The deal was temporary: it did not settle the underlying problem and left open the possibility of new tensions. A temporary end to a shutdown allows activity to resume, but it does not guarantee that the matter is resolved. Anyone relying on American public procedures would do well not to treat as closed what has only been postponed. A shutdown is, at bottom, a reminder that public deadlines can stretch for reasons unrelated to the file itself.

The practical lesson is to build slack into schedules and not assume that a public procedure will be completed on time. In contracts with customers or partners in the United States, it is worth allowing generous deadlines and alternatives, and discussing with an adviser what would happen if a permit or authorisation were delayed longer than expected. A clause covering delays for administrative reasons, or a schedule with alternative dates, can avoid disputes with customers and suppliers if the procedure is delayed.

In international business, a third party’s calendar is also a risk.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.