Impact of a shutdown on contractors means lost wages, project delays

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Government contractors are often overlooked when it comes to the threat of a government shutdown. Now that the government is shutdown, contractors are wondering how it will affect them.

Guidance from the Office of Management and Budget from Jan. 19 states, “routine ongoing activities related to the agency’s contract and grant administration would not usually be authorized to continue when there has been a lapse in the appropriation… In other words, during a funding lapse, the performance – by contracting officers, contracting officer technical representatives, contract administration personnel, and grants management specialists – of routine oversight, inspection, accounting, administration, payment processing, and other contracting or grant management activity would generally not continue.”

PSC, the IT Alliance for Public Sector and the Coalition for Government Procurement are offered resources centers for contractors as they planned for a shutdown.

The Defense Department provided guidance to employees about how to address contractor employees.

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“Contractors performing under a fully funded contract (or contract option) that was awarded prior to the expiration of appropriations may continue to provide contract services, whether in support of excepted activities or not,” the guidance states. “However, new contracts (including contract renewals or extensions, issuance of task orders, exercise of options) may not be executed, nor may increments of funding be placed on incrementally funded contracts or to cover cost overruns, unless the contractor is supporting an excepted activity. No funds will be available to pay such new contract or place additional increments of funding on contracts until Congress appropriates additional funds.”

DoD said contract officers in most cases don’t have to terminate or issue stop work orders in the case of lapsed funding unless a new obligation of funds is required and the contract is not required to support an excepted activity.

But where a furloughed federal employee is required for the successful performance of the contract, then the contracting officer may have to terminate or stop the contract during the appropriations lapse.

“The department may continue to enter into new contracts, or place task orders under existing contracts, to obtain supplies and services necessary to carry out or support excepted activities even though there are no available appropriations,” DoD states. “It is emphasized that this authority is to be exercised only when determined to be necessary — where delay in contracting would create an imminent risk to the safety of human life or the protection of property, including endangering national security. Additionally, when authorized by the Secretary of Defense, contracts for covered items may be entered into under the authority of the Feed and Forage Act.”

Many experts say vendors should’ve been talking to their customers well before the funding lapse deadline closes in.

As a partial shutdown threatened in 2015, the Coalition for Government Procurement released a checklist of to-do items for contractors, including:

  • Review your contract:

What is the contract type?  Under certain circumstances contracting officers may require continued performance fixed-price contracts may require continued performance if the contractor has already been paid or funds already have been obligated.

What is the funding profile? Is the contract fully or incrementally funded? Under certain circumstances funded contracts may continue.

  • Reach out to your contracting officer and ask:

Is the work performed under the contract deemed an “essential” activity necessary to protecting life and property?

Should contract performance continue in the event of a shutdown?

The biggest concern for contractors, according to experts, is that employees will not be paid during the shutdown.

“Contractors also feel the sting of the current [appropriations] ‘regular order’ because they are required to maintain their capability, including all their personnel, even if the government shuts down and they cannot deliver goods and services. That’s operational investment that is lost to companies and small businesses that they cannot get back,” wrote Trey Hodgkins in a blog post in December as a funding deadline loomed. “While federal employees have always been paid back for time they were forced to shut down their agencies, contractors cannot bill for the same time. The result is that this annual funding instability drives greater risk into the federal market and costs to the taxpayers go up as a result. Is it any wonder that we see fewer and fewer companies willing to invest in the government as a customer and we find it harder and harder to convince cutting edge technology developers to bring their products and services to bear on government challenges?”

Concerns over not getting paid are real for employees of contractors.

Several commented in a Federal News Radio online survey done earlier this week about the possibility of a shutdown.

“Told us we can have 40 hours paid time off, [and] then no pay,” wrote one industry respondent.

Another wrote, “We know the drill. No government, no billable hours. I thoroughly enjoy playing this game with my income every two months.”

OMB said in 2013 about the shutdown at that time, the trickle-down effect was hardest on small businesses.

Brookings, the Washington, D.C. think tank,  says in a report on the 2013 shutdown that “Moody’s noted that the economy took a more than $20 billion hit, while the loss in GDP has been estimated up to 0.5 percent. OMB/Bureau of Labor Statistics estimate that the shutdown limited the creation of 120,000 jobs. Beyond these costs, specific policy areas that were hit hard. Businesses depend on the Social Security Administration and Internal Revenue Service to check the accuracy and integrity of documentation including social security numbers for a variety of business services. The [OMB] report notes that ‘two weeks into the shutdown, the Internal Revenue Service (IRS) had an inventory of 1.2 million verification requests that could not be processed, potentially delaying approval of mortgages and other loans.’”

Berteau said he would expect a flurry of communication today and into the weekend explaining what contractors during the shutdown.

The survey found 81 percent of the industry respondents say they hadn’t heard from their agency customers as of Jan. 17.

“We will continue as if everything is normal, except for the people that currently work on a govt site will now be back at the office,” wrote one industry respondent.

Several others said they received warnings and preparations, but nothing official.

Another said they received more details and communications, “Contracting officer has provided verbal notification that formal (written) guidance for contract operations will be forthcoming later this week.”

Michael Fischetti, the executive director of the National Contract Management Association (NCMA), said unfortunately agencies and contractors have become numb to the constant cat-and-mouse game leading up to the shutdown.

“Unfortunately, in our outsourced government and how it’s funded, it’s going to be difficult for contractors and acquisition folks,” he said. “How do supplies and services get delivered if there is a shutdown? Contractors need specific instructions that have to come contract-by-contract from contracting officers. There is a lot of extra work and sometimes it’s for nothing. It’s a sad situation but it is the current state of affairs.”