Under shutdown, a complicated picture emerges for contractor employees

Service contractors will continue to work as long as they don't need supervision by government employees, if their contracts are unaffected by the absence of a ...

With the start of the government’s first shutdown since 1996, every federal employee who’s not granted a specific exception is being placed on unpaid furlough starting today, for a total of about one million workers. But the picture’s a lot murkier for federal contract employees. Most of them will continue to do work for agencies during a shutdown, even if it’s not clear when their companies will be paid nor when the government employees with whom they share office space will return to work.

Trade associations who represent government contracting companies have been telling their members for the past several days that they need to stay in close contact with government contracting officers and project managers on each of the programs they’re involved in to determine whether work will go on during a shutdown, since the impact will vary dramatically case-by-case.

In the case of contract employees, the question is not so much about whether they’re essential to the protection of life and property — the biggest criteria used for most federal employees in furlough decisions — but rather, how and when the money that funds their contracts was obligated by the government. Since the shutdown is hitting at the beginning of a new fiscal year, it’s reasonable to expect that many, if not most, contract employees will actually continue working during a shutdown, depending on how long it lasts.

“All of the ones working on contracts that were obligated with money before the lapse would be able to continue if supervision [by government employees] was available,” said Undersecretary of Defense Robert Hale, the department’s comptroller. “I think in the early stages of a lapse, that would be the majority of our contractors because most are going to be working on contracts, just almost by definition. If the lapse continued, that number would fall.”

Under guidance the Office of Management and Budget issued last week, contractors can continue to perform if their work is already fully funded, even without supervision by government employees, as long as that supervision isn’t critical to the contract’s performance during a shutdown.

Alan Chvotkin, the executive vice president and legal counsel at the Professional Services Council, a group which represents government service contractors, said he did not expect a lack of government supervision to interfere with many contracts.

“I think that universe is pretty small,” he said. “Most of the work should be done pursuant to a clear statement of work where government officials aren’t directly supervising contractor employees.”

But there are other potential wrinkles to consider.

“We have a significant portion of the contractor workforce that performs their work at government facilities. So if they’re denied access to those facilities because that facility isn’t open at all or there’s just a skeleton crew there, that would be a broader effect on the contractor workforce. Companies would have to either find alternative work sites for those employees, or even if those contracts were fully-funded, those employees could still be at risk.”

During a shutdown, agencies are generally prohibited by the Antideficiency Act from signing any new contracts or doing anything else to obligate government funds, with a handful of narrow exceptions laid out in federal law, as interpreted by OMB.

For example, if the government can articulate a concrete case that not signing or renewing a contract would cause an imminent threat to life or property, it can go ahead. And under an obscure Civil War-era law known as the Food and Forage Act, the Defense Department can invoke special authority to procure urgent supplies for military operations.

Apart from the Antideficiency Act, agencies are free to sign brand new contracts, as long as they’re paid for with under the relatively rare categories of appropriations that cover multiple years or no specific year at all, since they’re not affected by the fact that no 2014 appropriations bills have been approved.

But that assumes that agencies have the acquisition and contract administration personnel available to handle the transactions. And industry groups say those federal employees are going to be extremely hard to find at their desks during a shutdown.

“You won’t have the government partners on the other side who we normally interact with every day. A lot of that is truly important and it will hinder work no matter how you look at it,” said Marion Blakey, the chief executive officer of the Aerospace Industries Association. “If you’re in industry, it’s possible to continue the work if the funds are still available. But when you need to have affirmation, engagement, ideas, all of those kinds of things you share with federal partners, obviously there’s no one there on the other end of the phone.”

Chvotkin, of the Professional Services Council, agreed that the impact to industry from that absentee government workforce could be serious.

“The planning stops, solicitation evaluations stop, award evaluations stop, award decisions stop, validations of payments stop,” he said. “It’s a critical component of the workforce, and they’re all important cogs in the federal procurement system.”

In a letter sent to various industry groups last week, Frank Kendall, the Defense Department’s undersecretary for acquisition, logistics and technology, said government vendors would be paid if they’re working on valid contracts. But he warned that during a shutdown, payments would likely be disrupted or delayed because of seriously curtailed government operations.

Chvotkin said the level of concern about a shutdown among his group’s members is directly proportional to how long it lasts.

“The longer the shutdown, the more funds companies have at risk that are going to have to be reimbursed at some point,” he said. “Not all companies can just wait for that money to come. They may have to increase a line of credit or borrow against credit cards just to make payroll or pay vendors. And in 100 percent of past shutdowns, federal employees have been reimbursed for their lost wages, but 100 percent of the time, contractors have not been reimbursed for any costs related to a shutdown.”

Estimating the financial toll the shutdown will take on government contracting firms is an inexact science. Blakey said her group hasn’t conducted a study of its own. But she says there will no doubt be repercussions.

“These things tend to bubble up and get people’s attention only when they cause real problems, and then people say, ‘Whoops, we’ve just made a big mistake here,'” she said. “There are going to be a lot of unintended consequences that we can’t anticipate from the industry’s standpoint, and I think it’s very difficult for government managers to anticipate as well. This is a very murky future that we’re going into.”

RELATED STORIES: Agency-by-agency shutdown guidance

Feds expected to report Tuesday even if shutdown occurs

DoD would furlough roughly half of civilian workforce during shutdown

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