Contractors may struggle under burden of shutdown
Many companies that cannot perform their federal contract work during the government shutdown will still have to pay their employees, which could be a challenge with their government revenue cut off.
Contractors retain employees who can't work during the shutdown because once it ends, "you have to have the people available to start work again immediately," said Trey Hodgkins, a senior vice president at the trade association TechAmerica. "The company is faced with having to pay these people even if they have nowhere to go to do the work."
They can't simply furlough their employees the way federal agencies can, for legal reasons.
Contracts that require new funding in fiscal 2014, which began today, are mainly on hold during the shutdown. Those that support essential government functions are the exception, and agencies can also award new contracts for essential functions.
If a contract was previously awarded and funded into fiscal 2014, it can continue as well. But some of those will come to a halt if they require supervision from federal employees who are furloughed or access to federal buildings that are closed. Some contractor functions must be performed on site in agency buildings.
Alan Chvotkin, executive vice president and counsel at the Professional Services Council, said it remains to be seen how widespread the impacts of the shutdown will be on contractors. Contractors are only beginning to receive notification from agencies.
Decisions from agencies can be unpredictable, he noted, as there hasn't been a shutdown in 17 years.
One PSC member company that provides program management support just found out its work will not continue during the shutdown. "There's no planning going on, no program office work, so there's no federal employees to support," Chvotkin said.
Some contracts may be able to continue even if they are classified as severable services contracts, which provide ongoing work that doesn't result in a distinct end product, such as janitorial work. Nonseverable services end with the delivery of products that can't feasibly be subdivided, such as a research study that spans several years.
Severable services contracts can continue during the shutdown if they received funding for fiscal 2014. Chvotkin said though that they're restricted from crossing more than one fiscal year, and many are issued on a short-term basis and may not last if the shutdown persists.
While it may be difficult to cope with the shutdown, TechAmerica's Hodgkins said that contractors have become "desensitized in some ways, because this has become a regular behavior. Not the shutdown so much, but certainly the preparations for [continuing resolutions], what could happen if we don't have a CR, what can and can't happen under a CR."
"Sadly that is the way the government funds its operations and has been for too many years," he added.