Government Shutdown: What’s a Contractor to Do?

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Image by Mr. Physics via Flickr

While we are still optimistic that a federal government shutdown can be avoided, the threat is nevertheless real.  How will such a rare event impact contractors?

An article in Washington Technology poses the question to some people in the know.

John Cooney, the general counsel at the OMB during the 1995 shutdown was quoted as saying, “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.  In fact, agencies are required to keep people from working.”

Here are some key points for contractors dealing with a government shutdown should one occur:

  • Provide training for employees or assign them to 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.
  • Contracts providing services will be hit harder. Companies offering products will face changes in when and where they would make 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.  As a result, a shutdown would have a greater impact on service businesses.
  • To deal with a shutdown, talk with your contracting officer about what’s ahead. In preparation, companies should analyze the possible circumstances and make plans in case of a shutdown.
  • Track costs related directly to the shutdown as best as possible as some of these may be recoupable.
  • Be patient with the contracting officer as they likely will not know what is going on at the highest levels any more than you do.

It is likely a budget compromise will be reached soon, or if a shutdown does occur, it will be short-lived.  However, contractors and their salespeople should consider the impact of such an event on their business.

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OMB Says Contract Spending Decreased: What Should Contractors Do?

According to an article on the Federal News Radio website, the Office of Management and Budget announced a decrease in contract spending–the first since 1997.  OMB Deputy Director for Management Jeffrey Zients said contract spending declined from $550 billion in fiscal 2009 to $539 billion in 2010.

Yesterday, President Obama sent Congress a $3.73 trillion budget that included cost managing moves such as freezing Federal worker pay.  Prior to this OMB placed pressure on budget-makers to require double-digit cuts to professional services and advisory contracts.

President Obama also directed agencies to find savings through reducing their use of high risk contracts, such as time-and-materials and labor-hours contracts.  Zients said the savings amounted to a reduction of approximately 7 percent overall. Agencies also cut the number of new sole-source contracts by 6 percent and single-bid contracts by 11 percent.

The use of cost-reimbursement contracts rose, but Zients said that was likely due to a shift away from time-and-material contracts.

Apparently, one area of focus for cost reductions is contracting for professional and technical services. Gordon said professional and technical services generally refers to work that contractors provide in acquisition shops, IT shops and other areas where the government relies too heavily on contractors.

Implications

For contractors, this is not particularly good news.  And, it is possible things could get a bit worse by the time the budget makes it’s way through Congress.  However, here are some “glass half full” things to think about:

It could be worse.

While budget cuts and freezes will be felt, the magnitude could have certainly been greater.  A 2% drop in contracting does not equal a crash in government procurement.

Growth areas still exist.

National security budgets actually saw stabilization or growth.  In addition to a $4 billion increase for the Defense Department for fiscal 2012, the Department of Veterans Affairs increases 10.6% to $61.85 billion and the State Department is set to increase by 1% to $47 billion.

Focus on value creation and providing skills not prevalent within government.

It’s still all about value and easing pain.  In times of cuts, providing real solutions for increasing efficiency and reducing costs can be highly lucrative.

How the 2012 budget will ultimately plays out remains to be seen.  Stay focused on building relationships and solving problems, and you’ll be successful, even in a tightening government selling environment.