The agencies may not be actively preparing for a lapse in appropriations, but contractors are. With a midnight deadline on Friday and Congress more divided than ever, a shutdown is a strong possibility. David Berteau, president and CEO of the Professional Services Council, joined the Federal Drive with Tom Temin to discuss the steps contractors ought to be taking.
Interview transcript:
Tom Temin: And David, you’ve been handicapping this, looking at the legislation as it kind of ekes out.
David Berteau: That’s right, Tom, we finally got the bill over the weekend here. The three big questions overall. One is do the House Republicans have the votes to pass this bill first of all? And it appears as of our taping here that they may not even do a vote until Thursday. That’s getting awful close to the shutdown deadline. And then, of course, even if they manage to pass the House, it has to go to the Senate where it will take 60 votes. It breaks the budget cap that we had from the Fiscal Responsibility Act of a couple of years ago. And we’ve had caps for 12 of the last 14 years, Tom, but they really haven’t allowed us to get on time appropriations, have they? Because for 13 of those 14 years, we haven’t had any appropriations on time. And that looks like we’re headed potentially for the possibility of a shutdown. So we’re telling our members to start preparing.
Tom Temin: Yeah. Well, the politics we can discuss endlessly. But what should contractors do right now?
David Berteau: Well, 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. 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. So the first thing is talk to your customers.
Tom Temin: Keep your tea leaves in the tea bag.
David Berteau: Well, that makes it easier to read them I suppose. But I think that talking to your customers and let them know what you’re planning to do is an important thing. It’s important to know. So in a shutdown inside the government for federal civilians, it’s pretty much top-down. Who works, who goes home. Neither one gets paid until the end. For contracts, so it’s very different. It’s one contract at a time. If you have appropriated funding that doesn’t lapse left over from before and you can continue to do your contract, you keep working. So you prepare to keep going. But there’s a lot of things can get in the way there.
Tom Temin: Right. And just the simple act of getting payment, of notifying the government, of reaching a contracting officer, you have to have almost cellphone numbers of people.
David Berteau: It’s hard to tell ahead of time who’s going to be working and who’s not because they typically don’t tell the government workers until the Monday after when they come in and figure out do they get sent home or do they work? So you need to have backups for everything. It’s important to get your invoices in, update your invoices, get them prepared. Typically, the payment of invoices goes on for a few days in a shutdown because there’s prior year funding available. You want to be in line at the top of the stack when the payments are going out.
Tom Temin: Because the government doesn’t seem to be doing much with respect to modernization, new programs, new IT updates. I talked to actually a large department CIO the other day and he said, ‘Well, he’s having meetings with the secretary and the reasonable meetings,’ but nothing’s really happening except the maintenance of systems.
David Berteau: Well, and keep in mind, we’re operating under a continuing resolution. And the point is, you just continue to do what you were doing before. You don’t do anything new. You don’t stop doing anything old to perpetuate that for the rest of the fiscal year, of course, is unprecedented for some agencies, especially the Defense Department. The other thing, though, that contractors need to do is you need to know where all you people are. You need to know do you have access to the buildings, access to the data systems, etc. These are things you can work out ahead of time, at least as best you can.
Tom Temin: You have to also keep in touch with your own people, your own board, if that’s the case because internally, you’ve got to keep things going and upbeat and realistic.
David Berteau: Absolutely. And in some cases, of course, the lapse in appropriations will affect individual contract work. It could affect you directly. 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 OMB 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? 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.
Tom Temin: Yeah, it’s almost like we have chaos compounding the chaos coming.
David Berteau: It does seem like it’s chaos on top of chaos and certainly uncertainty. And that uncertainty, I think, is the other thing you have to prepare for. The second thing you do is what do you do during a shutdown? You might have, for example, a deliverable that you can’t move on to the next task until that deliverables accepted by the government and it might be due after the shutdown is underway. Find out who can accept that deliverable. What if they’re not there? Who’s the backup? Otherwise, you might be stymied. You can’t move on. You may have an option that needs to be exercised. Now that might be two weeks out, but you better start thinking now who’s going to exercise that option? These are important things to be doing during the shutdown as well.
Tom Temin: We are speaking with David Berteau, president and CEO of the Professional Services Council, and just a detail on deliverables. If it’s a physical deliverable, that’s one thing. What if it’s a software which you would not deliver in a truck to a loading dock.
David Berteau: Right.
Tom Temin: Something that you would transmit over the internet.
David Berteau: And supposed nobody’s there to receive it because sending is not receipt and is particularly not acceptance on the part of the government. So it becomes very important for you to have all this thought out ahead of time.
Tom Temin: Yeah. And the DOGE people are just dogey enough to understand that concept. Don’t open the email that constitutes receipt.
David Berteau: Well, you remember back in the sequestration shutdown when we discovered you had to turn your BlackBerry off if you were a government employee.
Tom Temin: Yes.
David Berteau: You left the office.
Tom Temin: Put it in a little basket on the way out.
David Berteau: So all these things could be coming into play at the end of this week and on into next week. Let’s hope, though, that in fact, Congress passes a bill or maybe a short-term CR that buys you time so you keep going, but we’re getting ready anyway.
Tom Temin: And the other issue, especially for the professional services companies, is the 10 big company review that has spread throughout all of the civilian and defense contracts with the Booz Allen’s, the Accenture’s, the Lighthouse’s and so forth that have these service contracts. What are you hearing? What are the companies saying? I guess all the data is not in yet.
David Berteau: Well, the memo cites consulting services contracts and it seems there are multiple sources for what constitutes a consulting service. There are a number of NAICS codes that fall into that category. There’s a FAR definition of what consulting services is. But it’s also possible that some of the data that GSA used in putting together this memo, questioning the validity of the contracts and requesting justification from its using agencies, might have just been a word search for the contract. If the word consulting shows up somewhere in the contract, then it must be consulting services. It’s a bit of a misnomer because in most cases, these are contracts not for PowerPoint presentations or market research, but for actual program execution and implementation. The government needs these contracts in order to do that. They were all required. All the agencies on receiving the benefits of these contracts were required to submit a justification to GSA as of last Friday. We don’t have any indication of what came in, but our member companies I know have been working very closely with their customers to provide the information necessary to justify not only the nature of the work, but the benefits, the results, the outcomes that come from this. That’s really where this contract review needs to focus.
Tom Temin: And many of these same companies also have operational contracts. They operate transactional web systems or call centers or this kind of thing, staff augmentation or staff in place of federal employees. They’ve got a lot going that maybe the word consulting is in there somewhere.
David Berteau: Absolutely. I think the nature of the contract is what’s really critical. And we’re talking thousands and thousands of contracts, Tom, across all the agencies in the federal government. So it’s really important for the agencies to look at what the purpose of the contract is, what the outcomes are that are being delivered there as part of that justification. In addition, of course, we’re talking to GSA itself to make sure they understand contracting in the government is quite a complicated and nuanced exercise. The scope of work may well be broad and the tasks done under that scope may be more clear when you look at the details than it is in just looking at the contract language itself. That’s important to convey to the customers.
Tom Temin: Well, it’s interesting that the president himself, President Trump, used the word, I think in one of his posts on X, the word scalpel instead of hatchet or something like that.
David Berteau: Instead of a sledgehammer, I think. Yeah.
Tom Temin: And that’s what everybody’s been saying in and out of the government. They need a scalpel, not a sledgehammer or not a hatchet. So maybe if we’re into divining, that could tell us something.
David Berteau: That would be a very useful approach. Right now, it seems that the predisposition is cancel unless justified to keep rather than argue why you should get rid of that contract. I think that the main thing there is does the customer up the chain of command understand this. In some agencies, for example, it isn’t the program manager is doing that justification, it’s a higher-level official. They may be able to take the bigger picture, but they may not know the details. So the companies need to make sure their customers have all the information they need to justify the contract, or if it’s in fact something that you want to set aside and give up. Let’s give it up and spend that money on something more important.
Tom Temin: So maybe we’re in the ready, aim, fire instead of ready, fire, aim mode.
David Berteau: I’m hoping that is the case. We’ll see when we get to justifications. I don’t know that we’ll ever see the justifications, but we’ll certainly see the results.
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