The looming partial government shutdown would hit federal contractors when many are already feeling down.
At least one company is already starting to feel the effects of the Trump administration’s efforts to terminate what they say are duplicative or nonessential contracts.
Federal News Network has learned that Guidehouse laid off a few hundred employees this week. The company declined to comment on the reasons.
But industry experts say it’s safe to assume all the current turmoil in the federal sector may be playing a role.
“There is a general uneasiness right now. Many don’t know from day-to-day what potentially might end up getting highlighted and cut,” said Mike Hettinger, president of Hettinger Strategy Group. “There is a lot of preparation to understand where they may have vulnerabilities. Software companies want to make sure their license utilization are accounted for and not end up on DOGE’s list. More are focused on making sure they are providing the proper amount of value to the government. The concern for consulting companies is much different where massive contracts are possibly being pulled out, which have been a staple of their business for years.”
Stop-work orders coming?
Now with a possible partial government shutdown in the works, many federal contractors are facing even more dire circumstances.
There is no guarantee that contractors will get paid at the end of a shutdown. David Berteau, president and CEO of the Professional Services Council, told the Federal Drive with Tom Temin, that because each contract is so different, depending on whether the agency’s funding for it lapses or if the agency has some funding to keep it going, the uncertainty and risks rise even higher.
“The funding could be over and you have to move your people to something else. Government may issue a stop-work order. One of the interesting things is that the Office of Management and Budget guidance, and it hasn’t been updated necessarily for this shutdown but is still in existence, gives broad discretion to contracting officers to determine is the risk too great. Should I stop work even though they have funding?” he said. “Sometimes the mentality might be, if I’m not working, you’re not working, even though you actually can work and continue going. You need to be prepared for all those eventualities.”
The insecurity a possible partial shutdown brings only builds on the current actions by the Trump administration. The current continuing resolution runs out on Saturday at midnight. The House passed a full-year CR, but it’s unclear if the Senate has enough votes to pass it.
The General Services Administration told agencies to review consulting contracts among the 10 largest companies, including Guidehouse. The concern now is that a partial shutdown on top of this analysis will exacerbate layoffs across the federal community. Add to that the thousands of federal workers now looking for new jobs, the situation becomes even worse.
Hettinger said that while shutdowns are temporary, the decision to cut contracts complicates the situation even further.
“Shutdowns are temporary, so [you] need to manage through the disruption, but when you move into a situation where you have a lot of people who were hired for specific contracts on the bench, and if opportunities are shrinking, you probably have to let those folks go. That is where it gets really dicey,” he said. “Companies are looking at having all these people coming to bench or potentially coming to bench and how do they insulate themselves? That is where everyone gets nervous.”
Sen. Mark Warner (D-Va.) said in a press conference today that he encourages contractors to speak up about the CR and the current cuts happening across the government.
“I think the contractor community is terrified. But if they don’t raise their voice, if they simply stay silent and say, ‘Well, gosh, maybe we can just ride this out,’ that would be a recipe for disaster,” he said. “We need to be equipped with the information to give the folks to bring lawsuits or to try to bring pressure. You can’t say on one particular in the defense area, well, we want to make our nation stronger, and then cut, without reason, the DoD workforce or the very critical roles that a lot of the contractors play.”
Warner said he’s talked with Virginia Gov. Glenn Youngkin (R) about the impact of the Trump administration’s changes to the state and its citizens.
“We may have a disagreement about this, but I think the loss of these federal workers and contractors is huge to Virginia. I think their skills is not going to be at all that easy to have them replaced,” he said. “The contractor community that I’ve met with are frankly astonished because I think they were excited about the idea that there were so many smart things we could do on DoD contracting. We could cut back on regulations, try to get program managers more authority on the contracts, try to make sure you can actually have the loser pay if you have a contract dispute [and] make sure that we have more fixed price contracts. We can actually save money and make our defense industry and our intelligence industry more efficient. We’ve seen none of that, and we have seen I hope to be able to bring this forward as I get the documentation where contractors who have done the work, already spent the money, are being told they’re not going to get paid. I call that fraud or illegality. I want to make sure I get the documentation.”
Berteau said PSC told their members to begin preparing for a partial shutdown.
“The first thing they should be doing is talking with their customers. And because you can pretty much count on internally, the agencies are not yet ready to indicate that they’re getting ready for a shutdown,” he said. “There’s this mentality somehow that if you plan for it, you’ll make it happen. Well, it’s going to happen whether you plan for it or not. So you better plan for it.”
The law firm PilieroMazza is telling its government contractor clients to prepare for a shutdown by considering a dozen different steps.
“While shutdowns are not new, each one brings its own set of challenges and uncertainties. The current administration’s executive orders and actions have added an extra layer of uncertainty for government contractors,” the law firm wrote in an email to clients.
Among the things vendors need to consider are:
- Document all costs incurred in connection with a shutdown, including wind-down, ramp-up, or acceleration of work, labor costs, and attorneys’ fees. You should also document all communications with contracting officers, employees, teaming partners, and vendors, as well as all shutdown-related actions. Generally, expenses incurred as a result of a shutdown should be recoverable, with the exception of backpay and consequential damages, which are not generally recoverable.
- Contractors should be prepared to receive different instructions from contract to contract. If FAR § 52.242-15, Stop-Work Order, is in your contract, the contracting officer may issue a stop-work order, which entitles you to an equitable adjustment for increased costs as a result of the work stoppage. However, it is imperative that you seek a directive of the stop work from the contracting officer in writing. Further, contractors need to be mindful of the notice requirements built into a stop-work order as a contractor commonly must assert its right to an adjustment within 30 days after the end of the period of the work stoppage.
- Decide whether to furlough or lay off employees. The term “furlough” is generally associated with government employees, but has more recently been used by private industry. A furlough is generally expected to be a temporary disruption, while a layoff is generally more definite. In either case, an employee is likely eligible for unemployment benefits. However, in a furlough situation, the employer still maintains fringe benefit programs, like health insurance and collects or absorbs the employee portion of any premiums.
As for the likelihood of the CR passing, Warner wasn’t sure, but he was voting against the bill.
“I was with a number of government contractors last night. They felt this CR was so bad that they all urged me to vote no,” he said. “The CR, in many ways, would be an endorsement of the Trump/Musk agenda.”
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