Defense Contractors Begin Early Shutdown Preparations

Contractors should immediately begin communicating with their contracting officers about the impacts of a potential government shutdown this fall, former executive branch officials and industry experts warned on Monday.

Already, said David Berteau, who served for 14 years at the Defense Department before becoming president of the Professional Services Council, the contracting community is “way ahead” of where the government is in terms of shutdown preparation. Still, he and other experts cautioned, companies should develop and maintain good relationships with civil servants now so they can solicit information from them as a potential appropriations lapse draws closer.

Agencies will be forced to shutter their doors on Oct. 1 -- or, more realistically, Oct. 2, which is a Monday -- if Congress fails to pass a spending bill to set agency funding for fiscal 2018. Representatives from business contracting with government gathered at PSC’s headquarters in Arlington, Va., on Monday to hear tips and advice for how they should prepare for such an outcome.

While contracting officers might be reluctant to speculate on shutdown impacts that have yet to be spelled out in detail by their agencies, the experts said, they might be able to provide some information on how a potential 2017 shutdown would differ from the last time the government closed in 2013. Contractors should also begin to think through questions such as how they will notify their employees of a stop work order, their ability to pay employees while not receiving government reimbursements, whether they will be able to enter a federal facility even if their work is slated to continue and what tasks will not continue once federal employees are furloughed.

“Now is the right time to prepare,” said Alan Chvotkin, the executive vice president and counsel at PSC. “Now is the right time to understand the nature of your contract.”

Contractors that wait until the finals days before the funding deadline will find themselves well behind where they should be, the panelists said, noting it would become very difficult to have access to information after a shutdown commenced. Furloughed employees are prohibited from conducting any work or even checking their government emails, and companies should assume their grant or contract officers will be sent home. Businesses should keep a careful eye on the messages coming out of the White House and the Office of Management and Budget, as different administrations have attempted to maximize or minimize a shutdown’s impact for political reasons.

“If we come to a shutdown this time around, who knows how the administration will apply this,” said John Cooney, who served in multiple positions at President Reagan’s OMB, of the wiggle room each president has in interpreting what constitutes the shutdown-exempted work relating to protection of life or property. “But there is some play in the joints there.”

Other factors contractors will want to keep in mind, the panelists said, include whether the renewal option on their awards would  come due during the shutdown; the deadlines often revolve around the new fiscal year. If that is the case, the company should ask the agency for an extension so the renewal date does not expire while no employees are present. Generally, contracts funded through multi-year appropriations will continue to operate normally, though companies will have to pay attention to the structure of the agreement. Contractors should assume their work will continue until they specifically receive an order to stop. If no such order is given, employees should report to their agencies and, if they are denied access, get the guard’s badge number and a picture of the locked doors. Proving employees were ready and willing to work will increase a firm’s odds of getting reimbursed for those days. 

Companies should account for all their expenses related to pausing their work, the experts advised, as well as getting it up and running again upon the reopening of government.  Mitigating those costs will increase the chances of receiving reimbursement from the government. Chvotkin, who worked for decades at various companies in their government relations offices, said employers should consider moving their employees on a paused contract to other projects, get them caught up on mandatory training or ask them to take vacation. Furloughing their workers should be a last resort, both for morale reasons and due to the logistical difficulties in issuing the notices and bringing the employees back to work once the government reopens.

The government is also facing a debt ceiling crisis, with the Treasury Department warning it will begin defaulting on its debts on Sept. 29. Agencies would not issue stop work orders in that scenario, Chvotkin said, and they would continue processing invoices. Contractors should accelerate sending their bills to the government so they get paid back first. If an agency runs out of money and cannot make a reimbursement, it would have to eventually pay the company back with interest.

The panelists also reminded contractors there is always someone present at agencies, including someone designated with the authority to handle contracting issues. All political appointees, for example, report to work during a shutdown. In 2013, about 60 percent of federal employees reported to work.

Berteau speculated Congress would likely pass some sort of spending bill to avoid a shutdown in October, but did not guess as to whether President Trump would sign it. The House has passed four of the 12 required spending bills and plans to vote on the remaining eightupon returning from recess. The Senate, which has been working on its own set of appropriations measures, has yet to cast any votes in the full chamber regarding fiscal 2018 appropriations.