Critical furlough questions you have to ask your customers

A lot of the conversation in the government market has swirled around questions about sequestration and its impact on contractors. And that’s the problem; there are plenty of questions, but not a lot of real answers.

That’s because the bottom line is, “nobody knows,” said Julian Rosenberg, government contractor advisory practice leader at Grant Thornton. And because nobody knows, Rosenberg’s recommendation to all government contractors is, talk to your contracting officer.

In other words, don’t expect that they will talk to you. Terry Elling, partner at Holland & Knight, a global law firm, said that, so far, a lot of government customers haven’t been very forthcoming with wanting to work with contractors to identify how to minimize the impact and the cost for companies doing business with the government.

“I think there’s a real risk that the government is going to be focused on its people and its internal operations; it’s not going to put much, if any, thought to the impact on contractors, so contractors who want to mitigate their losses, mitigate their risks, are really going to have to go above and beyond,” Elling said.

His advice is the same as Rosenberg’s advice; “reach out to the government affirmatively,” Elling said.

Conversations with your contracting officer will be simple, too—if you know which questions you should be asking. Professional Services Council vice president and counsel, Alan Chvotkin, listed three important areas that will affect contractors when it comes to furloughs—areas which need to be discussion topics with your contracting officer.

Know who’s who

Before you reach out to your contracting officer, you need to know who that person is. Contracting officers are the ones you need to talk to when things get a messy during furloughs.

“The contractor is still under a contractual obligation to go forward, absent other direction from the agency, so it’s important to know where those functions are, who’s responsible, and how to address those in any furlough situation,” Chvotkin said.

This situation would be helped, Chvotkin said, if agencies followed the model of the Housing and Urban Development Department and the Naval Air Systems Command, who both suggested a furlough process in which all employees are furloughed on a particular date.

If the government employee has greater flexibility in choosing their furlough date, it makes the process more difficult for the contractor.

Understand acceptance of work

If you have a material or services contract that requires approval and acceptance by a contracting officer, and if those deliverables are due on the date of furlough, then there’s a problem, Chvotkin said.

“The contractor should know this well in advance and be able to take action to ensure either that an alternative employee is available for that acceptance or that the delivery will be provided, and that acceptance will be done on another date,” he said.

Will you have access?

The biggest problem that contractors will have to discuss with their contracting officers is the question of what to do if contractors need access to a government facility that will be closed on the date of furlough.

“Companies will have to take action to make sure that work can be performed outside of that facility,” Chvotkin said. The contractor is going to have to “ensure that the work can continue, and that [the contractor's] employee can be properly addressed in terms of their work and pay.”

No matter the issue, the answers are sure to vary from agency to agency, and from contract to contract. That’s why it is so important to ask these questions, and ask them now to lessen the pain you’ll feel later.

However, once you talk to your government customers, be careful what they ask for, said Grant Thornton’s Rosenberg. Holland & Knight’s Elling also noted that most of his contractor clients try, at least initially, to be sympathetic and to work with the government customers.

While it’s good to be cooperative, Rosenberg foresees confusion lingering for a while, and from that, he sees some government officials, who might not necessarily have the authorization to advise contractors, making promises that they can’t keep.

“Contractors have to understand that the only person that has the authority to obligate the government is the contracting officer, not the contracting officer’s technical representative, not any cost analyst—it’s the contracting officer himself or herself, and they’re usually not in the field, so it’s always a big concern,” Rosenberg said.

As for how these furloughs will actually manifest for contractors, Rosenberg said that we may see contracts being partially terminated for convenience. If, for example, the program is running out of money, then the contracting officer might get the contractor to partially terminate the contract, or they might modify the contract, which could essentially be a partial termination.

Rosenberg said that, when that’s the case, there are regulations in place that allow a contractor to remain whole. “They’ll lose that future work, [but] they won’t lose any money on services or products that they’ve already built,” Rosenberg said.

Contractors should still be careful what they agree to. “Everybody wants to make their clients happy, but putting yourself out of business makes nobody happy,” Rosenberg said.