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By Nick Wakeman

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Nick Wakeman

Contractors brace for shutdown

A government shutdown seems more likely now than the near misses of earlier this year.

Many prognosticators are putting the odds at 50-50 but leaning toward a shutdown. The government has estimated that 800,000 government employees will be sent home if it happens.

For contractors, the picture isn’t quite as clear. They have options on how to keep working even if are locked out of customer sites.

“We’ve been preparing for this for over a month,” one executive told me.

The big question of whether contractors work or not depends on several factors.

The first is whether the customer is exempt. An exempt customer means the contractor keeps working as normal. Another executive told me his company created teams that included operations, finance, legal, human resources and contracts. The teams then are putting work into four categories:

  • Funded and essential
  • Funded and non-essential
  • Unfunded and essential
  • Unfunded and non-essential

A second factor is where the money is coming from. If it is 2010 money, work can continue but invoices may get paid late, according to Alan Chvotkin of the Professional Services Council. (PSC held a seminar on preparing for the shutdown in February.) If the work depends on money coming out of 2011 funds, work stops.

"If we have a contract and a statement of work and we aren't on a government site, we've got to show up for work," an executive told me.

A third factor relies on company policy. Workers can be shifted to other work that will continue during a shutdown. That likely will not take care of most workers, and some companies may require employees to take paid time off rather than laying off workers.

One company executive told us that if an employee doesn’t have PTO, the company will advance him or her up to two weeks' worth of PTO.

Another executive said he estimated that only 1 percent or 2 percent of his employees would be affected by a shutdown, but he acknowledeged that his company probably has fewer workers on government sites than average. His company will used PTO as well. "We don't want anyone to feel any pain," he said.

The looming shutdown also puts strains on relationships among contractor teams. An executive with a company that does a significant amount of prime and subcontracting work said it is struggling with what to tell its partners. Complicating that communication is how little customers are telling contractors, he said. "We have little guidance from the agencies," he said.

Small businesses will likely feel the greatest pinch from the shutdown because they have less cash flow and fewer resources.

Lost revenue is a worry, as is fear that employees who are forced to take vacations will decide to leave.

Jay Challa, chairman and CEO of Ace Info Solutions, of Reston, Va., told one of our reporters that his small business will try to shift workers to other projects. Other options include having employees work in research projects and proposal writing as well as using the time to catch up on certifications.

Aronson LLC, an accounting and consulting firm in Rockville, Md., has been advising contractors to treat the looming shutdown as a project.

“Assign somebody to be in charge or responsible for preparing your firm for a shutdown,” said Thomas Marcinko, principal consultant with Aronson, in an earlier story.

Contractors should be talking to their government contracting officers about what will happen to individual contracts, but as one executive told me, they have received little to no feedback.

Marcinko also is advising companies to talk to their banks and suppliers and to document shutdown costs.

“The shutdown is very complicated and impacts different contracts differently,” Marcinko said. “Handling it well will help a great deal. Not handling it well is close to fatal.”

Posted by Nick Wakeman on Apr 07, 2011 at 7:23 PM


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