Contractors Start to Feel the Shutdown Pain

This story has been updated. 

As the government shutdown drags on, contractors both large and small are raising alarms about ripple effects on their workforces and cash flow that threaten to worsen if the budget stalemate continues.

The Aerospace Industries Association on Thursday called on Congress to accelerate the process toward a solution or risk private-sector furloughs and certification delays that could wreak havoc on schedules for aircraft delivery and space launches.

“A number of our member companies have notified us that if this shutdown continues -- which is affecting all of the Defense Department’s functions involved in contracting – they will be forced to furlough tens of thousands of workers,” said AIA President and CEO Marion C. Blakey in a statement. “The most immediate concern is the absence of Defense Contract Management Agency inspectors…..required to audit and approve parts and operations throughout the manufacturing process for military products. The manufacturing process must stop if these inspections and certifications are not performed, choking off the flow of new equipment to our armed forces.”

United Technologies Corp. is readying furloughs of some 2,000 workers building the Pentagon’s Black Hawk helicopters, according to spokesman Paul Jackson.

On Friday, Lockheed Martin announced that some 3,000 employees have been identified for furlough on Monday, Oct. 7, due to the government shutdown. This number is expected to increase. “This includes employees who are unable to work because the government facility where they perform their work is closed, or their work requires a government inspection that cannot be completed, or we’ve received a stop work order,” a release said. 

“I‘m disappointed that we must take these actions and we continue to encourage our lawmakers to come together to pass a funding bill that will end this shutdown," said Lockheed Martin CEO and President Marillyn A. Hewson.  

The aerospace companies also bemoaned furloughs approaching 100 percent at NASA and among Federal Aviation Administration certification engineers and inspectors. With a fraction of the normal workforce, their association said, “the FAA will not initiate any new certification projects and will not be able to support smaller companies that rely on direct FAA support for design approvals.”

Idled FAA employees also drew protests from the National Air Traffic Controllers Association, which said, “As a result of the shutdown, 3,000 of NATCA’s aviation safety professionals, vital to the daily function, maintenance and safety of the National Airspace System” have been furloughed, with many controllers working without pay. “It is unacceptable that thousands of our aviation safety professionals have been forced to stay home due to partisan posturing in Congress,” said NATCA President Paul Rinaldi. “I implore Congress to reach an agreement to end this shutdown, which is hurtful to our nation’s aviation system, our economy and the American people.”

At the small business level, the advocacy group Small Business Majority sent officers to Capitol Hill with a statement saying, “The inability of lawmakers to successfully pass a federal budget and mitigate a government shutdown is distressing to the small business community as such negligence has unintended consequences in other sectors of our economy.”

Board member LaJuanna Russell, president of Business Management Associates Inc. in Alexandria, Va., said, “As soon as the government shut down I suffered an immediate loss of revenue, and depending on how long it lasts, there could be contracts I’m not awarded. That means I could end up having to lay people off…. I was just starting to rebuild revenue and regain some confidence in our economy, then this shutdown happened.”

The overall impact of the shutdown on contractors is complex and evolving, according to Dan Gordon, former administrator of the Office of Federal Procurement Policy now associate dean for government procurement law at The George Washington University. “Where an agency or component has two-year money, they may be able to stay at least partly open; similarly, for contractors,” he said in an email to Government Executive. “Those solutions are probably somewhat more common than people realize.”

But he added, “I am hearing that agency components with two-year funds are quickly using them up, and will need to close before long. Similarly, contractors are juggling day to day. In some cases, the companies are re-assigning the employees to other work; in some cases, they are encouraging the employees to take annual leave; and in some cases, they are putting the employees on unpaid leave.”

He predicted the pain from the shutdown will soon be more obvious than that from sequestration.

Shawn Osborne, President & CEO of TechAmerica, released a statement saying, “The constant cycle of continuing resolutions and constant brinkmanship with our government can’t continue. Anyone who does any business with the government is constantly living on uncertain footing completely, preventing them from doing any long-term planning or investments. Congress and the president need to understand that even after they come to a deal, the hangover of a shutdown is long and painful.”

The Professional Services Council noted on its website that the Defense Finance and Accounting Service in Columbus, Ohio, anticipates being fully staffed -- though it will ban overtime to conserve cash-- and able to process valid vendor invoices through about Oct. 10. “However, beginning immediately, they anticipate slowdowns due to government customers not being available to address pre-validation issues or provide the required receipt certifications.” Hence, the council wrote, defense contractors will likely see “invoices ‘stuck’ in pre-validation or in Wide Area Workflow waiting those predicate actions.”

Larger contracting companies may less vulnerable to a short-term cash crunch. On Oct. 1, the shutdown’s first day, General Dynamics announced it was one of 13 companies being awarded a five-year contract potentially worth $900 million to provide Integrated Cyber Operations Services to support the Space and Naval Warfare Systems Center.