For an administration that promised the richest economy in human history, things don’t look so hot at the moment. Federal contractors, facing cancellations across the board, have begun to look at layoffs. According to some published reports, legally required notices have come from 13 companies. In Virginia and Maryland, nearly 2,500 people would lose their jobs. David Berteau, president and CEO of the Professional Services Council, joined the Federal Drive with Tom Temin to give an outlook.
Interview transcript:
Tom Temin: And that was Nick Wakeman, our friend, that reported that, David, and that is quite a shocking development, fair to say?
David Berteau: It’s certainly unusual, Tom, the WARN Act, W-A-R-N, that stands for Worker Adjustment and Retraining Notification Act. I’ll note the retraining part of the title of the law there because it’s not really part of the actions in many cases. This law has been around for a good while. It was actually passed by Congress over objections from President Reagan back in 1988. And it’s pretty simple. Any company with over 100 employees is required to notify their full-time employees of a layoff to the extent they know it’s coming, right? Within 60 days in advance. If they don’t, by the way, they’re subject to paying 60 days worth of pay in benefits to the affected individuals. So companies have a financial incentive to get this right. On the other hand, they don’t want to put out that kind of notice until they know what’s going to happen. So the dynamic that we’ve seen in the federal government is lots of announcements of contracts that are going away, but when do they actually get terminated and what’s the notice look like, right? Because companies have to have some specificity. This is a fairly small number. It’s about 2,500 employees overall across 13 companies. But our suspicion is that this is only the beginning of what’s likely to be a continued process.
Tom Temin: Yes, if a canary dies, it’s only a small bird that croaks in the mine shaft, but the indications aren’t good.
David Berteau: Miners need to pay attention if the canary dies. That’s absolutely the case. And the data are hard to come by here. I mean on the DOGE website, there’s substantial claims of contracts terminated. But when you go to the actual contract database, there are maybe 10,000 full terminations. Not even clear how those are counted because we have instances across our member companies at PSC where a contract has been terminated then reinstated, then partially terminated again, then partially reinstated again and then partially terminated again. I’m not sure if that constitutes three termination notices in the database or only one because you can’t tell by sorting the data. So there’s a lot of uncertainty and a lot of expectation that more is to come as agencies continue to downsize, submit their RIF proposals, etc.
Tom Temin: And there was also a published report, I think the Wall Street Journal had an account that Deloitte has caught up in that consulting contract gambit of a couple weeks ago is laying off consultants. So that may not be counted in this earlier version, but that’s another kind of canary we’re seeing.
David Berteau: That’s a good point. The WARN Act notices full-time employees. It certainly doesn’t cover, for example, employees who are operating under a 1099 status or other part-time activity there. And Tom, the bigger picture here is from our perspective with respect to government contractors and their government customers, it’s entirely expected and, in fact, obligatory for an incoming administration to align the programs and projects with its priorities. And that’s partly what these guys are doing. They’re doing it in a different way than has been done. But every administration does that all the way back to my earliest transitions here. And right now, a lot of that focus is on where to cut and where to stop. But there’s also a need, some of it’s already visible. Others will come where instead of stopping, you need to go. Instead of going slower, you need to do more. And it’s important for, I think, the administration to keep in mind that in order for that, you’re going to need contractor support. You’re going to need their capacity, you’re going to need their capability, you’re going to need their competence to do those new initiatives and expanded initiatives. So you got to follow the contracting rules, you got a process in place, you need to pay the invoices for prior work that was required under contract, companies had no choice but to do the work and they have to bill for reimbursement of their expenses. And I think one of the things we would suggest, most important is focus that expanded area on results and outcomes so you can give a better job of defining what you need and then get contractors to do it for you. That’s where the hope is here.
Tom Temin: We’re speaking with David Berteau, president and CEO of the Professional Services Council. And one point you made I think is an important one to underscore and that is the administration by some views is playing fast and fancy with some of the rules and regulations, but contractors should not be lured into feeling they can do the same thing because these things have a way of coming around again. So stick to the letter of the statute of the law of the regulation in all your activities, regardless of what the administration might be doing.
David Berteau: That makes a lot of sense, Tom. There’s really three aspects to a successful government contracting. One is commitment to the mission. And you’ve seen this over and over again in your years on this show about how many contractors and their employees really are as committed to the mission of public service and the work of the government as the government people themselves are. The second, of course, is you have to stay in business or that commitment mission isn’t really worth much and stay in the business means you need to at least make enough money that you can keep going. And the third, and this is really your key point, is you have to comply with all the rules and all the regulations. As they change, you change with them, but they don’t change until they change in your contract. And that’s really important for both the government and the public to keep in mind.
Tom Temin: Yeah, I had a cop swerve around me the other day, cut back in without a turn signal and had a rear taillight out. That doesn’t mean I can do the same thing.
David Berteau: It certainly doesn’t.
Tom Temin: All right, and what else are you hearing? What are your members hearing about this consolidation of GWACs under GSA? That was ordained, but I don’t think there’s any shifting of the sands yet there.
David Berteau: It was, Tom. And there are a number of phases. One of the things that we do very carefully at PSC is we document for our members both the executive orders and the implementing guidance that goes with these executive orders. We expected, because the document told us to expect it, last Thursday guidance from OMB on the consolidation of the IT contracts under this consolidation objective. To the best of my knowledge, that’s not posted yet, so I don’t know if it’s been signed. We’ll see when it comes out. but that’s a big first step and there are a number of other steps going forward in May and June to move forward here. We’ve suggested that in fact GSA, this is not the first time we’ve seen an attempt to consolidate in GSA. In fact, GSA was founded in 1949 under the idea of consolidating for efficiency. But it’s really important, I think, for GSA for the early stages of this consolidation effort to be successful and visibly successful to the customers. And by demonstrating that you can do that, then it enhances the possibilities of successful consolidation elsewhere. There’s no doubt there’s benefits to the government for better buying power, for integration, but it’s got to be done right.
Tom Temin: Right, and they’ve been trying at it for 15 years now anyhow and they have gotten quarter of the way there you might say.
David Berteau: Well, you look at a number of the GWACs that have popped up over the last couple of decades in other agencies, some of those were in response to the fact that GSA was either too slow or not paying attention enough to the agency’s requirements or not delivering what the agencies needed. So ultimately, it’s not about the contracting process. It’s about delivering the results and the outcomes.
Tom Temin: Sure. And the other thing that didn’t quite pop, we saw the fuse lit, is that FAR rewrite, Federal Acquisition Regulation rewrite, that was supposed to pop out. I don’t think it did yet.
David Berteau: We haven’t seen it and we do anticipate an executive order there. It’s intriguing until we see the language, we’re not really sure what’s going to happen, but there seem to be indications. No. 1, let’s strip out of the FAR of those things that are not statutorily required. We’ve done this before, Tom, and it ends up being in guidance documents, manuals and procedural documents, etc., to go forward there. So we’ll have to see how that works. By the way, there are some things in the FAR that are quite important that are not statutorily based. So we’ll have to see how those are preserved as well. One, for example, that is really important is the authority of the government to terminate for convenience. Back to the beginning of the show here where we’re talking about termination of contracts. In nowhere in the public contract domain, it’s extremely rare, it may never happen, that a contractor can be terminated without cause and without any consideration or alternative action to come into play. That’s not typically the case in commercial contracting. It is true for the government and based upon how often the government’s been using that authority, we kind of assume they’d like to keep it. Well, you don’t keep it if you go to commercial contracting. You’re going to have to have special government rules for that. So we’ll have to see how this sorts out.
Tom Temin: And you don’t keep it if it’s not in statute either.
David Berteau: If you’re going back to the statutory language, there are ways obviously through the Administrative Procedure Act to issue rules that don’t have a statutory basis. The government does it all the time. But really, what’s the objective of this FAR rewrite is the question that is most important.
Tom Temin: Well, I think they might be finding that what scholars have found that trying to retranslate the Bible sometimes takes a lifetime and the FAR is longer than the bible.
David Berteau: Well, and more readily amended, I’m afraid. But ultimately, again, if you go back to the what are the goals you’re trying to accomplish? What are the results and the outcomes you have? We have a lot of opportunity to improve the government contracting process by focusing on results and outcomes instead of input.
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