Government Shutdown Armageddon

As we quickly approach the beginning of the U.S. Government’s next fiscal year on October 1, it looks more and more certain that Congress and the President will not come to an agreement on the budget. This will force the Government to shut down all non-essential services and personnel leading to massive furloughs for Government employees as well as impacting many U.S. Government contractors and their employees.

As reported in the September 20^th issue of the Stars & Stripes, the Pentagon has already begun dusting off and updating plans for navigating a government shutdown. The Office of Management and Budget earlier this week told federal agencies to begin preparing to shutter most operations, with only “excepted” activities to continue if funding lapses. In the past, the Pentagon has said those are ones essential to maintain the safety of life and property.

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Pentagon officials have faced this issue many times in recent years as a deadlocked Congress and President Barack Obama have battled over contentious political issues. The last major shutdown of the Government occurred in 1995/1996 during the Clinton administration. After a temporary spending bill lapsed on November 14, 1995, the Government shutdown and put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. A 2010 Congressional Research Service report indicated the shutdown impacted all sectors of the economy such as Health and welfare services, CDC, NIH, National Park, and passport and visa applications. Most importantly for our clients, more than 20% of federal contracts, representing $3.7 billion in spending, were affected adversely. It’s expected that the same sectors of the country will again be affected, and probably more so in today’s economy compared to the more robust 90’s.

The Pentagon has already issued orders to local commanders to quickly determine which civilian employees were necessary to keep on the job for the protection of life and property, with officials estimating half the civilian workforce would be sent home without pay, while the rest would continue to work for delayed pay.

Are you ready for a shutdown? Contractors should evaluate their circumstances, talk with their Contracting Officers, and make plans in case of a shutdown.  The biggest thing to know is whether or not you will have sufficient cash flow to weather a delay in payments. Secondly, will you be able to afford to pay your employees and not be reimbursed? There is no guarantee that after the shutdown that you will be paid for those costs. Talk with your customers to evaluate how a shutdown will impact them. Finally, make sure you document your decisions and all conversations you may have with Government officials impacting your business and any interruptions.

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