Getting Ready for the Next Budget Showdown

Thanksgiving is past, Christmas is ahead—it must be time for that annual ritual, the threatened government shutdown over the federal budget. A shutdown hits everyone hard, from citizens to businesses, but in particular agencies and contractors. 

The government is currently running on a continuing resolution, or CR, that expires Friday, Dec. 3, at midnight. Congress has yet to pass the defense authorization bill, among other urgent legislation. Compounding the pressure, Treasury Secretary Janet Yellen has estimated the government will hit its debt ceiling—authorization to pay on debts already incurred—on or about Dec. 15.

“My understanding is that [Congress] is debating right now whether they do a CR into February or so, get past the holidays, or do they do it for two weeks” to buy themselves time to get a budget deal done before Christmas, said Trey Hodgkins, former senior vice president, public sector, Information Technology Alliance for Public Sector and now founder of Hodgkins Consulting. “If it’s a clean CR, not changing anything—if there’s a natural disaster, it might have extra money—it could” pass quickly.

“But this process is disconnected from the way the world works today,” Hodkins noted. “No agency can obligate new funds for something that wasn’t on the books last [fiscal] year. A multi-year contract to migrate to the cloud? You can’t start that process.”

If a shutdown occurs, only government employees and contractors designated as exempt can work; non-exempt agencies and contracts, everything from national parks to cafeteria and janitorial services, are closed.

Agencies have been through shutdowns before. Many contractors, especially large ones, also have endured the dislocation of reassigning workers or laying them off until Congress acted to pass another CR or budget to resume operations.

Deniece Peterson, senior director of Federal Market Analysis at Deltek, said her team has been looking at the effect of the pandemic on federal IT spending. When she assessed the risk of a shutdown, she suggested that the pandemic may have helped some agencies become a little more risk-aware and plan better for unforeseen developments such as this.

“The changes that have been happening because of the pandemic—where did IT spending increase to address remote work, cyber issues, looking at what IT opportunities could come out of the post-pandemic environment, what vulnerabilities have been exposed … There is more flexibility now,” she said.

Hodgkins said programs such as the Technology Modernization Fund, which just received a huge boost in funding, provide agencies with some flexibility. “It’s a pot of money with no connection to a specific budget year, so they can fund things,” he said. “Each agency can create a fund from the savings [on modernization of legacy IT, for instance], to use for something else … Some agencies have created the funds, but we’ve got a bunch of agencies that haven’t put those funds in place.”

The last shutdown lasted from midnight Dec. 22, 2018 to January 25, 2019—35 days, the longest shutdown in history, and not that long ago.

But that doesn’t mean agencies already know how to respond, cautioned Gordon Bitko, ITI’s senior vice president of policy. He pointed out that there has been a change in administration, with accompanying changes in leadership and personnel. His past experience would indicate the agencies will be looking for new guidance, particularly regarding the essential vs. nonessential designations.

While agencies may struggle with a shutdown, the consequences to contractors can be far more dire, all these experts warned. 

Hodgkins pointed out that large contractors may be able to keep employees assigned to government contracts on paid leave during the shutdown, or move them either to essential contracts or to commercial contracts. That creates the risk of a ripple effect, however. “My engineer moved to another contract, now the government is working again but I don’t have a computer engineer available anymore,” he said. “Then I’m stuck playing catch-up.”

Smaller government contractors are less likely to have the resources to keep paying their employees during a shutdown, Bitko said. 

“An important piece is for contractors to understand the chaotic situation that [will] exist,” Bitko said. “First and foremost, you can’t overstate the importance of talking to your contracting officers, finding out what their guidance is … Some of it will be clear, some will depend on the contracting officers.”

He said this is something that companies have to do for every contract they hold, even if they’re in the same agency. For a small contractor with just a couple of contracts, this is essential but attainable; for bigger companies with multiple contracts across a number of agencies, it can be daunting.

In the event of a shutdown, contractors will have to be very cautious about laying people off.

“The job environment now is such that it’s easy for employees working for a government contractor to go find a job in the private sector,” Bitko said. “That’s a real issue. Contractors are in a new space right now, figuring that out.” He said it is important for federal contractors to be open with their employees about what is happening and what measures the companies are taking to keep their workers.

Peterson said that contractors should be assessing their opportunity pipeline—what are the contracts that will be delayed or deferred, what are the new opportunities arising from the new infrastructure law, how those will be affected, and so on.

“Some companies don’t examine the health of their pipeline often enough to account for changes in the environment,” she said. “Successful companies stay on top of it.”

Peterson suggested that companies also need to reassess their turnaround time on task orders. After a shutdown ends, federal spending gets telescoped into a shorter calendar period, she said, without changing the deliverables that are due.

Bitko echoed that concern. “If there’s a shutdown, work stops, agencies are in preparation for the shutdown, and it compresses the work for everyone else,” he said. “Contracting officers are spending time working on what they need to do for current contracts, not working on new contracts or everything else they need to do … If you have a contract that expires in March [that won’t be ready to recompete], how do you plan for that? Having an understanding of what those contingencies are, how those contracting officers are going to make those decisions, is an important part of the discussion with them.”

All of this addresses the “known unknowns” of a government shutdown. It does not address the “unknown unknowns” of a debt ceiling default.

Bitko is not yet anxious about that prospect, believing that cooler congressional heads will prevail. “It would surprise me if there’s not a resolution on the debt ceiling because nobody knows what would happen,” he said.

“Debt default is a very different dynamic,” Hodgkins said. “I’m seeing indications that there’s an effort to calm things down” on Capitol Hill. “That’s new territory for everyone as to what the protocols would be. It’s not clear, for example, can [agencies] continue to incur debt. That is the kind of question that now comes into play … No one knows what the government would do.”