White House Wants to Reduce the Shutdown Pain for Contractors

During this week’s continuing shutdown drama, White House acting chief of staff Mick Mulvaney has reportedly instructed agencies to identify the hardest hit programs, presumably to add to the growing lists of tasks the Trump administration believes it can legally perform to mitigate the pain.

One move in the works would benefit contractors, according to a draft revision of shutdown guidance from the Office of Management and Budget obtained by Government Executive. It would alter past guidance of both the Trump and Obama administrations to allow non-furloughed agency employees to pay contractor invoices for work on contracts awarded before the Dec. 22 appropriations lapse.

The prospective move (OMB did not respond to inquiries on Thursday) also comes as the U.S. Chamber of Commerce organized a letter to President Trump and members of Congress signed by 645 businesses, including small business contractors in 50 states demanding an end to shutdown.

OMB’s draft guidance dated Jan. 22 in the form of frequently asked questions “supersedes” and “replaces” an answer to the hypothetical question “In the case of a contract or grant that has been previously awarded (and thus for which available funds were obligated), may federal employees be excepted from furlough to make timely payments to the contractor or grantee in accordance with the contract or grant?”

In the Obama Guidance sent out on April 7, 2011, by then-Budget Director Jacob Lew, the answer was “No - except in very limited circumstances. During a lapse in appropriations, the activity of making contract and grant payments on a timely basis does not, by itself, qualify as one of the limited circumstances for which obligations can be incurred under the Antideficiency Act.”

In guidance used by OMB last January under Trump, the answer was the same as it was under Obama, although the word “no” was omitted from the text.

But the new proposed guidance adds the word “yes.” And it specifies that “such payment activity is ‘necessarily implied,’ either because the funds that were obligated are multiyear or no-year or (if such funds have lapsed) because of the continued availability of funding, as provided in 31 U.S.C. § 1553(a), for making disbursements on amounts previously obligated.”

That change means "OMB just did a complete about-face from their own 2011 guidance on making payments to contractors during a furlough when the funds were obligated prior to the shutdown," said Richard Loeb, a senior policy counsel for the American Federation of Government Employees, which tracks agency use of contractors in fighting for federal jobs. "It's a major concession to contractors, and an insult to agency acquisition staff who will be expected to process payments while they are not being paid,” he told Government Executive.

Also objecting to the change is Sam Berger, an attorney who worked at OMB during the 2013 shutdown and is now with the Center for American Progress, “When there’s no significant damage to a funded program if payment is delayed, then you can’t make it during a shutdown—which the prior lawful guidance explicitly says,” he said on Thursday. “Trump is once again putting politics before the law. The administration directed the Internal Revenue Service to illegally make refund payments. Now they’re directing the rest of government to do the same. You don’t fix a shutdown by breaking the law, you fix it by funding the government.”

The change would be “astonishing,” in the view of Charles Tiefer, a law professor at the University of Baltimore who studies contacting policy. “The very definition of an appropriation is that it is only for a fixed time,” he said. “OMB has exceeded its role by coming up with ways agencies whose appropriations have lapsed can nevertheless spend money purportedly from an appropriation.”

If a government employee is a security guard, for example, he wouldn’t be getting paid during a shutdown, but a private contractor working as a guard, under this approach, would get paid, he said. “But what if there was an indefinite delivery, indefinite quantity contract? Does that mean the government can pay it forever?”

If there were lawsuits challenging OMB, however, it’s not clear what plaintiffs would have standing to sue, Tiefer added, guessing that the contractors would probably lose.

The potential contractor break was seen as welcome but insufficient by David Berteau, president and CEO of the 400-member Professional Services Council. The draft guidance “does not require the agencies to pay—they may see it as an option,” he told reporters in a Thursday conference call. His group would push for the guidance to make such payments mandatory. “If the company has performed the work, and the invoice has been accepted, the agency should pay all the invoices that are ready. It’s only fair. They’ve done the work. And it would keep these companies in business that would not be in business.”

Neil Bradley, executive vice president and chief policy officer at the Chamber of Commerce, elaborated on the state-by-state impact of the shutdown on businesses. His group counted 41,107 contractors last year for such agencies as the Homeland Security Department, the Agriculture Department and NASA, agencies all affected by the shutdown. Small business last year did $29 billion in contracting, which, “pro-rated for the duration of the shutdown,” puts at risk some $2.3 billion across the country, Bradley said. California alone had 5,185 companies with work valued at $183 million, while Iowa had 385 contracts valued at $5.7 million.

“The pain being inflicted on American families and businesses is significant and long-lasting,” Bradley said, citing a survey last year that showed one-third of such business had no rainy-day funds for “surviving an incident like this.”

The long-term worry he is hearing from businesses, he said, is that shutdowns “become the norm.” Government in the past was always a “reliable partner” that paid its bills. “So how do they plan? If the government doesn’t have that reliability, that has to be factored into the contract. That’s not good for taxpayers.”