Ross Wilkers

SHUTDOWN

What the 2013 shutdown tells us about today's funding dysfunction

It should be noted at the outset that this ongoing government shutdown is different from the full 16-day one six years ago in that not all agencies are feeling the pinch today from a lapse in funding.

The Defense and Veterans Affairs departments and intelligence agencies within DOD are operating almost business-as-usual as they have their budgets fully obligated for this fiscal year, for example. But eight Cabinet departments are fully affected such as Homeland Security, plus other independent agencies like NASA that obligate a large piece of their budgets to contracts.

Even so, it is helpful to also look back at what happened during the full government shutdown in 2013 to see the implications of this current partial one as stop-work orders start trickling out to contractors who do not get paid for time and services lost.

Publicly-traded government services companies reported quarterly revenue losses of anywhere between $15 million and $30 million in 2013, according to a research note from Bloomberg Intelligence analyst James Bach. That group includes CACI International, ManTech International and the former Computer Sciences Corp. federal business (later CSRA and now part of General Dynamics IT).

But another aspects certainly worth noting is that in that select group, we are talking about companies anywhere between $2 billion to $10 billion in annual revenue when factoring in what is now the combined GDIT-CSRA business. They can also have employees use paid vacation to protect margins.

Smaller and midsized businesses have harder choices. The short shutdown in January of last year saw some companies in that category have employees undergo training sessions or work on other projects as they awaited the restoration of funding to resume business with agency customers.

Companies also are constantly in flux during either a full or partial shutdown on which employees are deemed essential. One day a group of staffers may not be deemed essential, and the very next day they may be.

What cannot be discounted is the hits services companies in particular take to cash flow, a longstanding attribute investors have liked about the market given the government’s usual status as a reliable payer of its bills. Bach notes that the current furloughs of almost 380,000 government employees may delay processing of invoices.

And even after this shutdown ends, he cautions that businesses should get ready for a “volatile contract funding environment in the years ahead that tempers industry growth expectations.” That forecast assumes more stalled budget negotiations in the future between a divided Congress and the Trump administration given the latter’s demand for $5 billion in southern border wall funding, which spurred the current shutdown.

Some of that concern over growth even in a perceived outlook of an upturn in the market has shown up in recent weeks on the financial markets. The S&P Aerospace & Defense Index that includes many government IT companies is down nearly 6.5 percent over two weeks. That decline also factors in concerns over macroeconomic factors such as trade, however.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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