Interview transcript:
Stephanie Kostro Since fiscal year 1977, which really is calendar ‘76, there have only been three years that have started under full-year appropriations. So continuing resolutions — when people say, let’s get back to normal order, I don’t know about many in your listening audience, but 1976 was a very long time ago. For only three years — and for those of you playing along at home, that was 1997, 1995, and 1989 — those were the three years that started with full-year appropriations. So this drill of continuing resolutions and the constant specter of a shutdown is nothing new to those of us living in the United States and specifically those of living in the National Capital Region. Contractors in particular look at this situation and go, we just want funding certainty. That’s the thing. And for those companies right now who are operating with fiscal year 2025 obligations, funding, whether or not there’s a shutdown, it’s business as usual, right? They are going to continue to do their work under contract until that funding runs out, or they receive a stop work order or termination notice. And so for those contractors who have money in the pipeline from previous fiscal years, they’re doing fine. It’s the folks who, when that money runs out or they’re dependent on new appropriations here coming up in fiscal ’26, who are scratching their heads going, how do we deal with this uncertainty?
Terry Gerton Well, contractors have had a lot of ups and downs over the last few months as contracts have been terminated for convenience or there have been stop-work notices. And we talk a lot about the impact of a shutdown on the federal workforce, but we don’t talk a lot about the effect of that on the contract workforce. So kind of walk us through how all of this is playing out and what point we’ve reached.
Stephanie Kostro Absolutely. Before we get to the contractor side, Terry, something you just said triggered a thought in me, which was: We should also be talking about the federal workforce, particularly with recent Office of Management and Budget guidance for agencies to come up with plans to terminate employment for civilians going forward. If they’re not deemed essential under a shutdown, could they be subject to termination going forward? So that piece of it, I think, is worth highlighting because our contractors depend so much on relationships with their contracting officers in the government, with their program managers and their program offices. And if those people are suddenly no longer there, it does make life difficult for contractors. That said, there was a law passed back in 2019 that if a federal civilian, and military too, once they come back to work after a shutdown, they get fully compensated in terms of their pay. No such legislation exists for contractors and so if they are sent home, if they are furloughed because of a stop-work order, for example, they are not guaranteed back pay. So contracting companies are thinking through this going, all right, what can we do instead of furloughing or terminating employment? Can we ask the employees to go ahead and take all of their annual leave that they’ve built up, etc., because they budgeted for that. So one of the important steps for all contracting companies is to understand, where are their people? How much leave do they have, could they take, instead of being furloughed? And really, what does their cash flow situation look like to make sure that they are keeping their employees? And, you know, to be honest, Terry, Professional Services Council, we represent services solution contractors. We are a people business. And so keeping the people in this business is critical for survival of our industry.
Terry Gerton I’m speaking with Stephanie Kostro. She’s the president of the Professional Services Council. Well, Stephanie, let’s keep talking about people for a minute because there’s been such a loss of institutional knowledge over the past few months as, as you point out, federal workers have left, but also contracts have been downsized or shifted. How is the federal contract space thinking about that human capital in the longer run?
Stephanie Kostro That’s a great question, Terry, because again, we are nothing if we’re not our people, right? And so as we move forward, you know, given everything that’s happened since January with stop-work orders, with contract terminations for convenience, etc., we’ve encouraged our member companies to really look at diversifying their portfolios. Some companies have done work outside of their typical federal agency. And I’ll give you an example, companies that used to work with the U.S. Agency for International Development. That agency has now ceased to exist. It’s been subsumed into the State Department. So they’re still working with State Department, but maybe they’re diversifying to Health and Human Services or to Department of Homeland Security, where, you know, they can have a more steady stream of work and of contract viability. We’ve also encouraged them really to look at state and local governments. What can they offer there, for example, or the NGO community? How can they partner with them to help? Particularly when it comes to international development, some of those skills are transferable to work here at home. In addition, you know, we’ve been talking to folks about, you know, what do they do under a shutdown? Again, continuing resolution is sort of the name of the game and has been for the last 50 years. And so what happens under a shutdown to make sure that they understand they need to communicate with their government interlocutors, their colleagues over in whatever building they’re in, and then also to document, to make sure that they have a good documentation trail — we’ve had these communications with these particular civil servants or military personnel and these steps were taken in terms of a contract. And then also to plan what happens if we have a continuing resolution that extends just before Thanksgiving. I think the date that I heard was November 21st. We’re going to be facing this cliff, as you said it earlier, again with the potential for another CR or a shutdown. And what happens there? I would highlight, Terry, when we have a CR that expires in, say, the November-December-January timeframe, a lot of times previous fiscal-year money is no longer available. So right now I’m not saying we’re okay; I am saying that there are a lot of contracts that are being worked right now that have previous fiscal years’ funding. That may not be the case coming up in November and December. And so we were watching this very closely.
Terry Gerton So Stephanie, you mentioned several things there. You mentioned workforce planning. You mentioned the liquidity and cash flow management, diversification of contracts, and then planning. As we sit here on the 30th of September, it’s a little late to be going, “oh my gosh, a shutdown!” But it might not be too late for the next one. What are the key things that you want your contractor population to be thinking of, but also the government folks who are going to still be working. What do you want them to be thinking about?
Stephanie Kostro I love how you quickly summarized what I was saying earlier. I really, really appreciate the CliffsNotes version there. There are six things actually that we are asking folks to think about before a shutdown, right? One is, again, those relationships. What is the availability of the government personnel that you normally deal with? That could be a contracting officer, contracting officer representative, or a contracting office or termination representative, right, if you are trying to work through that termination settlement proposal process. That’s the first thing. Are the people there who you want to talk to? The second is, can you access the government sites and facilities that you want to access, that you need to access to do your work? For example, you normally sit at the Pentagon. Will you be allowed in under a shutdown? And so there is an issue with that. The third is, expect that there are going to be delays in processing and paying invoices. So get all of your invoices in and get them accepted as soon as possible. The fourth is, hey, there may be delays in completing contracts and accepting deliverables. So how are you going to sequence your calendar for that? The fifth is, yeah, let’s look to the future. There are going to be delays in solicitations, evaluations and awards. I will note statutory deadlines for protests, etc., they don’t change under a shutdown. Those clocks still tick. So I just wanted to highlight that for you. And the sixth thing that we ask people to think about: If you have an option to be exercised, there will be challenges on that. And so I think those six things, you know, the availability of government personnel, the availability of facilities, and then delays in invoicing, solicitations, completing contracts, and exercising options — those are the six big things that we’re encouraging companies to look at.
Terry Gerton And just one final question. If we do go to a shutdown, it’s very difficult for contractors to get their government representatives, perhaps, to answer a phone call. How do they manage in that interstitial period, right, when nobody’s picking up the phone?
Stephanie Kostro You know, it’s funny you should say that, Terry. We had a member brief back on September 2nd, where we started encouraging people to say, reach out to your contracting officers and those who might be accepting your deliverables, and say, hey, if you’re not there, because you took the deferred resignation package, or because, you know, you’re retiring, or because you might be furloughed or otherwise told to stay home because you’re essential, who do we talk to? We’ve been beating this drum for about a month, so I’m glad that you’re beating the drum alongside me, Terry. But you really need to figure out who’s going to be left to answer the phone or an email under conditions of a shutdown. And that’s just good business planning throughout the year, not just on October 1st.
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