Contractors should brace for a government shutdown

While there is still optimism that a federal government shutdown can be averted, the threat is real and there is plenty of uncertainty over how government contractors will be affected.

Senate Majority Leader Harry Reid (D-Nev.) intends to bring a short-term measure before the Senate next week to keep the doors open for another 30 days but Republican leaders in charge of the House have promised to reject a move if the measure continues funding the government at current levels, which the GOP believes are excessive, a news report states.

Still, the chances are small for a government shutdown on March 4 when the current continuing resolution expires, although the political situation has changed and the reasons for a shutdown have increased, said Barry Anderson, a former acting director of the Congressional Budget Office. He spoke this morning at a conference hosted by the Professional Services Council on the implications of a potential shutdown.

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Meanwhile, federal employees and government contractors remain in limbo, on the edge of a rare event that has lots of twists and turns as many decisions depend on answers to other questions.

“You will find there is a maze here. There are no good answers,” said John Cooney, who was the general counsel at the Office of Management and Budget during the 1995 government shutdowns. He also spoke at the conference.

If the government closes, agencies would launch their plans required by OMB and downshift to a skeletal crew of employees. Only a few jobs would be exempt from stopping during a shutdown, for example, those jobs that protect government property, such as federal buildings, or those that protect life, such as health care services or troop support. Often, Social Security Administration offices remain open and operational, as well as offices related to Medicaid and Medicare services.

This time, IT will be a new problem for officials to deal with. During shutdowns in the past — even the most recent in 1995 — the government was not so dependent on the Internet for providing services.

Cooney said the IT function would be critical during the shutdown, even as officials try to draw a dividing line. For example, the same Web server may host a government website offering registration services for Medicare as well as public relations for the agency. Legal officials would have to decide if the server should operate and if the employee who operates it is a necessary employee.

“OMB is going to have to think long and hard about what to do when the same website might be supporting a portfolio of accepted and non-accepted functions,” Cooney said.

For government contractors some contracts may be exempt from the shutdown while others are not.

A company may have to shift employees to avoid working on a project that isn't funded. The government is banned from accepting voluntary work, Cooney said. In fact, agencies are required to keep people from working. He suggested giving employees training that they may need or having them work on another project that isn't affected by the shutdown.

Contracts paid for with fiscal 2010 money are still in operation, but invoices might be paid late because of a shutdown. The government might owe a little more if the payment is late. Yet the contractor would generally be required to continue working and to bill the government according to the terms of the contract, said Alan Chvotkin, executive vice president and counsel for the Professional Services Council said at today's conference.

Contracts providing products and services won’t be affected in the same way despite using fiscal 2011 money.

Product sellers wouldn't be hit in the same way as service contractors. Companies offering products will face changes in when and where they would make their deliveries, but the government likely will have already paid the companies for those products. However, services aren’t paid for when the contract is signed, Chvotkin said. Those companies may be paid a number of different ways, from quarterly payments for work to jobs done per day.

As a result, a shutdown would tear into service contractors’ pocketbooks, he said.

To deal with a shutdown, Chvotkin and Cooney both recommend that companies talk with their contracting officers about what’s ahead and share their concerns. In preparation, companies should analyze the possible circumstances and make plans in case of a shutdown. They should document if, for example, employees' job status were changed and account for how the shutdown affected the business, Chvotkin said.

“Make sure you can track the costs as best you can,” he said. “The stronger the documentation, the greater the likelihood of being able to demonstrate the costs incurred.”

Cooney said be patient with the contracting officer, especially if the shutdown goes on for many days.

He said, “The contracting officer may not know and may not have any answer because the decision being made is far above his pay grade and being made on very different grounds.”

The pain may be short lived, depending on whether the shutdown is "soft" or "hard." In a “soft shutdown,” federal employees would come to work but could not do anything “productive,” that is, anything to carry out the central duties of the agency.

“Basically they’re told the clean up their desks and consult with friends,” Cooney said, adding that it’s the flipside of a snow day, where employees come into the office or stay home.

The soft shutdown would occur if the president believes there’s a chance for a rapid compromise with Congress. "We designed it to give the president some other option besides Armageddon,” said Cooney, who helped draft guidance on shutdowns in the 1980s.

On the other hand, a “hard shutdown” would mean employees are furloughed from work.

Alyah Khan, reporter with Federal Computer Week, contributed to this report.