Vendors starting to take shutdown-related austerity measures

The anxiety level among federal contractors is starting to rise as the partial government shutdown enters its third week.

With lawmakers still far apart in how to at least temporarily fund the government, some contractors are implementing “austerity measures” to help reduce the impact on their bottom line.

Leidos, for example, has asked all indirect employees — those not directly related to a contract like bid and proposal managers, public affairs and even corporate vice presidents — to reduce the number of hours they work a week to 32 and use vacation to make up for the other eight hours.

“Given the uncertainty and prolonged nature of the shutdown, we have come to a point where prudence dictates some additional measures be taken to help our business navigate these choppy waters,” wrote Chris Cage, Leidos’s chief financial officer, in an email to the company, which Federal News Network obtained. “Assuming the shutdown continues, beginning Monday, Oct. 20, corporate indirect employees will be asked to temporarily adjust their work hours.”

A spokesman for Leidos confirmed the changed hours for some employees.

“We are taking steps to address interruptions due to the shutdown. Our aim in these situations always is to minimize the impact on our employees as we balance the needs and requirements of our customers,” said Brandon Ver Velde, a Leidos spokesman in an email to Federal News Network. “During the shutdown, some of our work for our federal customers has been paused, and some affected employees have been temporarily furloughed. We continue to work closely with our customers to address their needs during this time.”

At some companies, these austerity measures go even further to layoffs.

Sources say Peraton laid off indirect employees because of concerns about the shutdown and future federal spending.

The company submitted a Worker Adjustment and Retraining Notification (WARN) Act notice on Oct. 3 in Virginia saying that it would be laying off 92 people as of Dec. 5. It’s unclear if the layoffs were in direct response to the partial shutdown.

Peraton declined to comment on the layoffs and other austerity measures.

Layoffs are not piling up, so far

In Virginia, the Fairfax County Economic Development Authority said they believe about 1,628 government contractor employees have been laid off in 2025 due to contract cancelations. The EDA also says they believe this would be an undercount because this is the aggregate of layoff events reporting through Virginia’s WARN Act.

In Maryland, no federal contractors have issued WARN Act notices since Oct. 1, but the Maryland Department of Labor’s monthly jobs report shows a steady decline in the state’s employment over the past few months, though it’s difficult to say how much of this decline can be tied to federal contractors.

Governor Wes Moore (D) has said there are 225,000 contractors in Maryland.

There also haven’t been any new WARN Act notices filed with the Washington, D.C. government since August.

In other federal contractor hotbeds such as Texas and California, there are few signs of the impact of the shutdown yet. For example, in California, RTX laid off two people on Oct. 10 and SAP America laid off 82 people on Oct. 6. But it’s unclear if these decisions are related to the shutdown or for other reasons.

Several contractors, including Deloitte, Accenture Federal, Maximus and General Dynamics-IT, declined to comment when asked about the impact of the partial government shutdown so far and what austerity measures, if any, they are taking.

An executive at one medium-sized systems integrator, who requested anonymity in order to speaker about internal finances, said the partial government shutdown has impacted one major contract so far.

“About half of the people on the contract have been impacted, but that is about 20% of our total workforce, or around 100 people,” said the executive. “We have been figuring out ways to keep them on board. It’s been a combination of two things, some are taking vacation and others are doing training. We haven’t had to lay anyone off yet.”

Civilian agencies more likely to stop contracts

The executive said the company will keep these employees on board through October, but if the government doesn’t reopen by November, then they will have to reconsider their plans.

“We do expect to see lower revenues for October because our contract is a time and materials type so it will be lower. We want to preserve our workforce as much as possible so we are doing our absolute best to avoid layoffs or leave without pay,” the executive said.

This executive’s experience is common among vendors. Stephanie Kostro, the president of the Professional Services Council, said while the initial impact of the partial shutdown varies among vendors, the concerns about the long-term problems are becoming top of mind for many leaders.

“There are a lot of contractors out there who are still working under contract because they’ve got fiscal 2025 appropriations, and those haven’t run out yet. That’s what makes a shutdown in October different than, say, a shutdown in December or January, because you do have prior year funds that can carry you through that only last so long,” Kostro said in an interview. “That also assumes that these contractors haven’t gotten stop work orders from their contracting officers. Now, we have seen lots of stop work orders come out specifically and predominantly from civilian agencies.”

Kostro added that several PSC members started planning for a possible shutdown in August and September, developing possible plans of actions to include encouraging employees to take vacation time.

“We are at that point in a shutdown, that if you’ve gotten a stop work order, or if you were depending on new contracts coming out and they haven’t been delivered yet or signed yet, that you might actually start having to furlough people,” she said. “We have seen that, including a little bit in the defense space. We’ve seen more stop work orders in, say, Health and Human Services or Veterans Affairs, but we are seeing some in the national security space, and furloughing employees is something that folks are doing at a last resort.”

The longer the partial shutdown continues, the more likely vendors will be impacted.

Data from Deltek looking at IT software, for example, shows a large number of contracts and task orders expiring both by the end of October and by the end of the first quarter of fiscal 2026.

“Given that most procurement activities are impacted by the shutdown in varying degrees, the question remains of the impact of these expiring contracts/task orders on agency operations?” said John Slye, a federal market analyst at Deltek. “Most software providers supporting an agency are invested in the agency’s ongoing success. Therefore, I have a hard time envisioning a software provider turning off their software-as-a-service (SaaS) offering under the current situation. The provider may have to take some action to ensure that doesn’t happen, and that impacts their operations and financials, of course. What I see as the more likely impact is the time and effort it will take to get all of these agreements updated, etc. once the shutdown is resolved. Overcoming that backlog will take considerable effort and time, which is one of the well-known impacts of these shutdowns. And this impacts both the agencies and their suppliers.”

And of course, even if the partial shutdown ends anytime soon, contractors have to deal with the fact the government will not pay them for the lost time.

Sens. Tina Smith (D-Minn.) along with Mark Warner (D-Va.) and Tim Kaine (D-Va.) and Rep. Ayanna Pressley (D-Mass.) introduced legislation in both chambers to guarantee back pay for contractors, but it’s unlikely Congress will pass the bill. The Fair Pay for Federal Contractors Act of 2025, which includes 106 House co-sponsors, but only one Republican, Rep. Brian Fitzpatrick (R-Pa.), would adjust the price of contracts to compensate federal contractors for providing back pay to employees who were affected by the lapse in appropriations.

“A number of the defense contractors, because there was such a plus up on the big bill…that passed this year, I don’t think the DoD contractors have felt it as much. But the truth is, yes, contractors don’t get that back pay, and I am very concerned,” Warner said during a press briefing today. “That’s one of the reasons why we got to get this shutdown done. Let’s get in a room, do a negotiation and reach agreements that we don’t hit the health care cliff and we get the government back opening.”

PSC’s Kostro added that her organization and several employee unions support the legislation, but it’s clear it will be an uphill battle to get the legislation passed.

Lawmakers have tried unsuccessfully to get the bill passed in 2019 and 2023.

“We continue to push for it because we think, as we always highlight, that government contractors are partners to their government customers. If there’s a law that supports federal employees because the shutdown was no fault of theirs, that same courtesy should be extended to federal contractors, the shutdown is no fault of theirs, either,” Kostro said. “In an ideal world, everybody would be back at work and getting paid for the work that they do, and we keep that as a touch down as we go forward.”

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