Contractors do their best to weather shutdown storm

Tony Crescenzo, chief executive officer, Intellidyne

Michael O'Connell | April 17, 2015 5:39 pm

If you’re a furloughed fed, Congress may vote to pay your entire salary retroactively once the government shutdown ends.

It’s not that way for federal contractors, especially the smaller ones. The shutdown means many of them have received stop-work orders from federal agencies, forcing them to make tough decisions.

Tony Crescenzo, chief executive officer of IntelliDyne, a technology services firm, told Federal Drive with Tom Temin and Emily Kopp his company has had to come up with contingency plans in case it receives stop-work orders on any of its government contracts.

“Into about day four of the shutdown, we began to see a vacillating list of stop- work orders,” he said. “The numbers moved day-to-day and they’ve moved since the shutdown started.”

To start with, Intellidyne allowed employees to take all of their accrued paid time off. Then, depending on the size of the contract and the ability of the company to finance it, they could “go into the hole” a bit to have a negative balance in paid time off. At that point, though, companies typically begin putting their employees on unpaid leave.

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“When we looked at the breadth of the effect on our company and our employees — we had recently won several contracts, had new employees who had accrued no leave — we weren’t really willing to let those employees go right on leave without pay, given that they had just left their jobs for a job with us,” Crescenzo said.

After conferring among themselves, members of the Intellidyne executive team looked at their own leave balances and offered them up to their employees to use.

“I looked at mine and said, ‘Wow, I’ve got 110 hours of leave to take. It’s very easy for me to give all but four days up so I can take some time between Christmas and New Years,'” Crescenzo said. “Twenty-four hours later, we had, I think, about 250 hours of leave for our pool of employees to use.”

The executives then reached out to the rest of the company and a within 24-hours a bank of 1,500 vacation hours were available.

New protections for subcontractors

Devon Hewitt of the Protorae Law Group told Federal Drive she has seen an increase in the number of prime contractors scratching subcontractors and taking work in-house. One of the reasons for this is the lack of work available.

“Prime contractors want to use subcontractors and, where there are subcontracting opportunities, primes must use subcontractors to fulfill their subcontracting plan requirement,” Hewitt said. “They commit to the government that they will subcontract a certain portion to small businesses. However, now that supply is smaller, I think primes feel less flexible in allocating work to subcontracting and they want to keep the level of work and profits in-house in order to keep constant the revenue they’ve had in the past, which has now shrunk because there’s less work to go around.”

The prime has many ways to dump a sub, from not renewing an option on a contract to not having the sub work on new task orders. If the prime’s contract allows it to dismiss the subcontractor at any time, the prime may just simply tell the sub it’s no longer needed.

“There are various decision points in contract performance that would allow a prime contractor to take the work back,” Hewitt said. “But luckily there are new regulations that are going to help subcontractors.”

A ruling in August prohibits primes from preventing a subcontractor from contacting the government about work that the subcontractor will be receiving.

“Prime contractors now have to represent to the government that they will make good-faith efforts to use subcontractors if they have participated in the proposal effort and if they do not use the subcontractor in the same scope amount and quality used in preparing and submitting the proposal,” she said. “They have to notify the contracting officer and the contracting officer is compelled to consider that in evaluating the performance of the prime contractor

Hewitt blogged about another recent ruling on Multiple Award Contracts (MACs) that implements Section 1331 of the Small Business Jobs Act of 2010.

That rule provides additional tools to contracting officers to raise the participation of small businesses when they’re handing out MACs.

Originating in the Small Businesses Jobs Act, the new tools offer a way for contracting officers to work with the MACs schedule process and identify places within those contracts to set aside awards or orders that are exclusively for small businesses.

Revenue gone won’t come back

The shutdown may also mean the contractors will lose revenue from work that they would’ve been paid for. In Crescenzo’s experience, any revenue that a contractor hasn’t received won’t be coming back.

“They’re not going to extend a contract,” he said of agencies that have issued stop-work notices. “The funds are appropriated, but most of the contracts are fixed-price contracts, so they’re not affected. But contracts that are T&M [time and materials] or cost-plus, where the work is not performed, we only have a limited time to perform that work. So, unless we get authorization to add more hours to those contracts, we’re not going to be able to use them up. Certainly, the employees are not going to receive any backpay.”

Over the last four years, contractors have learned to deal with the vacillations in funding caused by repeated continuing resolutions. Companies adapted to this by either having funds in reserve to carry them through the lean times or a good relationship with their banks, which allowed them some flexibility.

“The bank issue is less of an issue for companies like ours,” Crescenzo said. “We’ve had some significant wins, some good growth over the last year. What really affected us was the fact that we have to carry these employees on overhead and we’re not getting paid for their services. In this current era of sequestration, profit margins are razor, razor thin. You don’t have a lot of money in reserve on some of these contracts.”

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