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How Government Contractors Are Affected in a Shutdown

Posted on October 11, 2013 in Government Contracts

The government shutdown of September 2013 has far-reaching effects on everyone, particularly those who depend on government contracts for employment. According to the website Government Contracting Tips, the government will not fund contracts for services that it considers non-essential during the shutdown. Services that are necessary to ensure the health and safety of the American people will continue to receive funding during this time. This includes such federal organizations as Medicare, Medicaid, and the Federal Housing Administration. In 2012, the federal government spent 516.3 billion dollars doing business with private contractors. That amounts to 1.4 billion dollars in new contracts every day.

How the Shutdown Affects Military Contractors

The Department of Defense will continue to perform services that are essential to national security and the protection of life and property. Those who are considered essential personnel include 400,000 civilian workers and 1.4 million people who are on active duty with the united States military. These people will continue to get paid due to a defense bill that was signed shortly after the shutdown occurred. However, another 400,000 civilian workers will be out of work and it is unclear if they will get paid during the shutdown.

There is already a lot of criticism of the bill that President Obama signed guaranteeing that essential military personnel would get paid. It specifically states that government contractors who provide support for people in the armed forced will continue to collect a paycheck. A large part of the problem is that much of the bill is left open to interpretation. For example, are companies that work on large weapon systems providing essential support to the military? This question can really only be answered by the Secretary of Defense.

Another issue with military contractors is that smaller companies are unlikely to have the cash to continue to pay employees while work is put on hold. At this point, it is too early to tell how small and large military contractors will be impacted. During the last federal government shutdown, which occurred during December 1995 and January 1996, approximately 20 percent of the $18 billion dollars in military contracts were put on hold. Numerous contractors were furloughed during this time and never reimbursed for the money they lost.

According to an article in the Washington Post from October 1, 2013, the financial impact would be much greater today. In the past 17 years, the number of private military contractors has substantially increased. In the Washington, D.C. area, the top 40 military contractors brought in $104 billion in 2012. In nearby Fairfax County, Virginia, there are approximately 4,100 military contractors who bring in $26 billion dollars per year.

The Government Shutdown and Construction Contractors

The industry website Construction Data Company reports that construction workers with contracts that have been previously funded should not be impacted by the shutdown and that the majority of federal construction projects will continue without interruption. There are some exceptions to this, however. A federal construction project taking place at a federal facility could be stopped if the building is required to be closed due to the shutdown. In all likelihood, contracting officers and administrators will be considered non-essential employees and furloughed until the government is back in business.

Because funding for the Highway Trust Fund was previously approved by Congress through fiscal year 2014, construction crews working on local and state highway improvements should not have their work interrupted. The Federal Highway Administration is authorized to reimburse workers at the state-level Department of Transportation for current projects and those that upcoming through the end of the 2014 fiscal year. If the shutdown lasts beyond that, highway construction workers may have to wait it out without pay.

The construction contractors that stand to lose the most during this shutdown include the following organizations:

  • Indefinite Delivery/Indefinite Quantity (IDIQ)
  • Multiple Award Construction Contract (MACC)
  • Multiple Award Task Order Contract (MATOC)

In addition, cost and material contractors for architectural and engineering projects are expected to be negatively impacted by the shutdown. These groups are considered non-essential and are not expected to work or collect pay during the shutdown. Pending federal contracts that have not yet been awarded will remain in that status until the shutdown is officially listed. Construction Data Company also reports that bids and due date for current proposals could be postponed or cancelled. Each reporting agency is responsible for developing its own contingency plan.

The Criminal Justice System

A Prison Fellowship newsletter dated October 1, 2013, reports that only 15 percent of workers who have contracts with the Department of Justice will be furloughed during the shutdown. Within this department, all law enforcement officials, staff of the Drug Enforcement Administration (DEA), United States attorneys and staff of the Federal Bureau of Investigations (FBI) are expected to continue working. The staff at all federal prisons, including healthcare workers who treat prisoners, are also not expected to be impacted. The United States Parole Commission is only open to emergency requests during this time. That includes requests for emergency warrants and the processing of parole certificates in order to preserve the writ of habeas corpus.

Buildings, facilities and commisionary accounts associated with the Bureau of Prisons have enough funds in reserve to continue to pay expenses in a government shutdown situation. However, all training for non-essential and newly hired Department of Justice employees is being postponed until the government is once again functional. Federal courts have enough money in reserve to pay operating expenses until approximately the middle of October. If the stalemate has not been resolved by that point, federal courts will have to operate with only a few judges and essential employees. Supreme Court cases that are schedule to be heard after October 7, 2013, may be rescheduled. Additionally, most civil cases will be suspended by the Department of Justice.

The Department of Justice's Fiscal Year 2014 Contingency Plan states that all civil litigation will be postponed or curtailed to the extent that this does not compromise the protection of property and the safety of human life. Federal courts have the right to deny litigator's requests that trials be postponed and proceed with them as scheduled.

The National Parks System

Most employees of national parks and historical monuments are considered non-essential and are not expected to work or collect pay during the shutdown. The number of National Park Service workers who will be unemployed is around 21,000 people, or 86 percent of its workforce. Some offices will have a very limited crew on hand to answer questions from the public and perform research. Crews of firefighters who are actively engaged with putting out fires and those who are monitoring specific areas for signs of fire will continue to work. Some of the National Park Service sites that are impacted include:

  • All Smithsonian museums in the Washington, D.C. area
  • The Statue of Liberty in New York
  • Independence Hall in Philadelphia
  • Yosemite National Park in California
  • Acadia National Park in Maine

During the 1995-1996 government shutdown, 368 National Park Service sites were closed. Communities that depended on the parks for revenue lost approximately $14 million dollars per days. Adjusted for inflation, that figure may be twice as high in 2013. Visitor centers are closed during the shutdown and all educational programs must be rescheduled. People who were camping or staying in hotels on National Park Service property were given 48 hours to make other accommodations. The shutdown is expected to have a huge financial impact on the tourism industry.

Miscellaneous Government Agencies

Some individual agencies that are not part of a wider group are also impacted by the government shutdown. For example, over 90 percent of the Environmental Protection Agency (EPA) will not operate during the shutdown. The Small Business Administration (SBA) will not process new loans or provide loan guarantees until the two major political parties have worked out their differences on national healthcare and the budget. The following are some additional miscellaneous agencies and groups that are impacted by the federal government shutdown:

  • Benefits to veterans, such as call center information lines and pension plans, could stop entirely during the shutdown. Employees of these programs would not be paid.
  • The National Institute of Health (NIH) will not work on new clinical trials or research cures for life-threatening diseases. Some furloughed NIH employees may be eligible for back pay once the shutdown ends.
  • Consumer rights organizations, such as the Child Product Safety Commission, will not operate until the government is working again.

People who work under a government contract should contact their immediate supervisor for further details on how they are personally impacted.