Professional Services Council on Government Shutdown: “Truthfully, it’s discouraging.”

Originally published in Public Spend Forum (www.publicspendforum.org)

As we mentioned in our piece earlier today, the government shutdown could have lasting effects on federal procurement and the federal supply chain. While the legislative branch duked it out on Monday, we got Alan Chvotkin, Executive Vice President and Counsel for the Professional Services Council—the trade association representing government professional and technical services—on the phone to talk about how its members were reacting what advice he could give them, and what the long-term ramifications may be.


Have you been hearing from contractors concerned about the shutdown?
Absolutely. They’re very concerned about it, both from an ongoing-work perspective, and from what it’s going to do to future opportunities. And they’re wondering if they’re even going to be getting paid for work that’s going to continue. There are a lot of risks.

What’s some advice you’re giving them?
It falls into a couple of areas. The first is to know whether any work you’re doing—all of the work that’s already been awarded—it’s important to know how that work is funded, whether it’s fully funded or incrementally funded. That will determine if the work can continue after October first. If it’s fully funded it can go ahead, except in those rare circumstances when ongoing work requires direct and continuing government supervision, but that’s a small part of the universe.

Are they worried about no new work being awarded?
Well, very few of contracts are made in the first few days of the fiscal year. If there is a shutdown, and I hope there’s not, the impact should be minimal if it’s for a short duration. The longer it goes, the greater the impact on the smaller firms. There’s also a greater impact on companies providing professional services rather than manufacturing. Most of those services contracts, they’re for smaller dollars and last for a shorter duration. They may be more often incrementally funded, say every month, or every quarter. Manufacturing tends to be fully funded more often.

I would imagine that smaller companies are going to be most hurt by this.
Depending on the length of the shutdown. But it will certainly have a cash-flow impact on them, if that shutdown happens for longer period of time, say three to four days, or even five, seven, ten days, then you begin to see it significantly affect cash flow. The government tries to pay small businesses more rapidly, so the cash flow impact to smaller firms is even more magnified. We’ve been telling our members to study, make sure they know when their contract was awarded and how it’s funded.

But this is not the first time we’ve come up to a deadline for a potential lack of funds. It seems like Groundhog Day, we’ve been to this movie before. Most companies spent some time making sure they’re well-positioned with lines of credit so they have the funding they might need, can meet payroll, while they’re waiting for the government to reimburse them for expenses. The only problem is, there’s a cost to that. There’s an interest cost to using somebody else’ money, and the government isn’t reimbursing that, so the company does incur direct costs.

What does this uncertainty do, as far as businesses pursuing federal contract opportunities?
Truthfully, it’s discouraging. Companies will decide what market opportunity there is for them, but these types of fiscal issues make it much more uncertain. The procurement lead times, the time between development of a requirement in the agency to the time it takes to make the award, keep getting longer, so companies need alternate sources. The dynamics in the federal marketplace are changing, a lot more companies competing for fewer dollars.

The CEO of PSC spoke to Congress about this, about crisis budgeting, and some of the effects this has on agencies and companies. They can adjust to spending patterns if they know what they are, but if you give them little to no time, or a very short window of time, only the most critical types of work get done, the rest gets sacrificed.

So what happens if the shutdown persists?

The longer it goes, the short-term impacts are more and more magnified. You know federal employees who were furloughed will have to be called back to work. And 100% of the time when fed employees have been furloughed by a gap in funding, Congress have reimbursed them for the time lost. On the other hand, 100% of the time, federal contractors have never been reimbursed because of gaps in funding that have occurred. And because of a stop-work order, or a reduction in programming, a company’s employees may have to go find other work, and may not be available for recall. That puts a challenge on the company to be able to restart and find the necessary personnel. Incrementally, as the period of time gets longer, challenges for companies get larger.

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