Interview transcript:
Terry Gerton We’re in week three now of the federal government shutdown, and so conversations continue around things like back pay. We’ve heard a lot about back pay for furloughed feds. We’re now hearing the military is moving money around to pay military, but there’s a different set of situations around federal contractors, right?
Stephanie Kostro There is, and I would mention, Terry, you and I have talked at length in previous conversations about that 35-day shutdown in late 2018, early 2019. And during that time, there was a piece of legislation offered, and I’ll just back up for a second. In 2019, Congress passed a law that talked about back pay for government workers. Also in that timeframe, because of the 2018-2019 shutdown, Congress also discussed back pay for federal contractors. And we’re back there having that discussion again.
Terry Gerton So what is the law and what’s its current status?
Stephanie Kostro So back in 2019, 2018, 2019, there was introduced a bill called the Fair Pay for Federal Contractors Act because the shutdown ended. It didn’t really go anywhere in 2019. It was reintroduced to 2023. It didn’t really go anywhere because there was no shutdown. It has been recently reintroduced. Again, it’s the Fair Pay for Federal Contractors Act of 2025. It’s been introduced in both the House and the Senate, and the champions are predominantly Democrats, as you can imagine. This piece of legislation would provide contract workers, including low-wage service workers, but not limited to them, with back pay to include restored paid leave benefits, if they use them, after a shutdown ends. And so this is a critical piece of legislation for our community of government contractors who really see themselves as partners to the government. But this is one area of enormous discrepancy. There has been a law for back pay for government workers, but not for government contracting workers.
Terry Gerton And Stephanie, you mentioned the coverage for low-wage workers. Talk to us a little bit more about how that would work, and how the compensation limits that are in this proposed legislation would work.
Stephanie Kostro That’s a great question, Terry. And the compensation limits are tied actually to poverty levels. And so I want to mention this, that the contract workers are not just low-paid service workers. They run the gamut from janitorial staff and hospitality workers, all the way up to government contractors who are providing solutions like technology, et cetera. The costs that are covered by this bill for back pay would be in amount equal to their compensation — I’m going to give you some math here, Terry — up to $1,442. And that seems like a random number, except that the legislation actually goes to explain where that came from. It is actually based on the federal poverty level for a family of four, 250% of that. And so that is where they came up with that $1,442 number. And that’s a weekly compensation. It will also require the Office of Federal Procurement Policy, which is a procurement office within the White House to submit a report on federal contractors accessing back pay. So there is some oversight built into this legislation.
Terry Gerton Tell us more about that OFPP reporting requirement. How might that actually help contractors access the back pay they’re owed?
Stephanie Kostro So my understanding is that this OFPP, the Office of Federal Procurement Policy, OFPP report would really talk about how, what kinds of workers are accessing this back pay, how much is actually paid out, how it extends in the shutdown period. What’s interesting to me right now, Terry, is that this bill is again, predominantly supported by Democrats. There are a couple of Republicans, particularly on the House side who have, last time I looked, had supported this as co-sponsors. But the support from unions, the support from industry, a lot of times industry leaders and union leaders don’t often agree. But this is one area where everyone says, listen, if the government is shut down through no fault of federal contractors, it’s also no fault of the career civil servants and others in the agencies, go ahead and give them back pay when the shutdown ends.
Terry Gerton I’ve been speaking with Stephanie Kostro. She’s president of the Professional Services Council. So Stephanie, let’s keep the thread of shutdown but shift topics just a little bit. The Defense Pricing Contracting and Acquisition Policy, or as you said, DPCAP, has some interesting provisions that may come into play here during the shutdown as well. Tell us a little bit more.
Stephanie Kostro Sure, Terry, of all the unfortunate acronyms to have to pronounce, DPCAP might be one of them. And so the Defense Pricing and Contracting Acquisition Policy Office in the Department of War or Department of Defense, depending on how you want to talk about it, did issue a class deviation right there on the first day of shutdown, on October 1st. And that class deviation says something very, very interesting to the contracting community. As you know, typically under a shutdown, you cannot incur new obligations because fiscal year 2026, in this case, appropriations have not been made, so there’s no money for new work in 2026. You can continue to work on contracts that were funded by prior fiscal year’s appropriations, so those companies that have work that was funded by 2025 can continue as long as those dollars are still unexpended, so they are continuing to go along. The real rub was what happens with 2026 funding and 2026 work. This class deviation actually says that when awarding contracts and modifications, et cetera, to carry out accepted activities, and those are things that are deemed essential, that’s the word we typically use in this context, you can go ahead and obligate those funds under the presumption that those appropriations will be made. This is fascinating to me, Terry, because it runs up against what traditionally has been the argument of, that’s an Anti-deficiency Act violation. But this class deviation says, go ahead, if you are supporting essential activities of the Department of Defense, Department of War, go ahead and obligate those funds so that those activities can continue. It’s fascinating.
Terry Gerton So, it seems like folks might be a little hesitant to do this, given the long history of Anti-deficiency Act violation discussions. But give me a couple of examples of what you think this kind of work might cover.
Stephanie Kostro So there are exceptions of when you enter into a shutdown, just like there are workers who are deemed subject to the furlough and those who are deemed excepted from the furlough, there’s work that is either going to stop under a stop work order or not get started in the beginning. And then there is work that is essential to be continued. And so one argument that was made was that they went back to this frequently asked questions document put out by the White House there actually on October 3rd, which was the third day of the shutdown. And that FAQ is called Frequently Asked Question During a Lapse in Appropriations. And there’s a whole section on contracts. And one of the Q&A that they put in this FAQ is, when an appropriation has lapsed, how can you enter into a new obligation? And they said, there are four circumstances where you can actually obligate funding. So these are the ones that I’ll give you right now, Terry. One is a statute expressly authorizes an agency to obligate funds in advance of appropriation. So it’s in the law that they’re allowed to do this. The second is that a function addresses emergency circumstances, such that the suspension of the function would imminently threaten the safety of human life or the protection of property. So this is the imminent danger piece, that it’s an emergency circumstance. You can imagine, we just had a nor’easter roll through the East Coast. If something terrible had happened, the government could actually go ahead and obligate funds to address any of the damages that might have happened. The third circumstance is the function is necessary to the discharge of the President’s constitutional duties and powers. Not entirely sure, that seems a large enough exception that you could drive a truck through it, but I haven’t heard of any particular examples in this case. And then the fourth circumstance is the agency must continue the function in the absence of appropriations because its continuation is quote, necessarily implied, end quote, from the continuation of other authorized activities. And so this is where the Department of Defense, Department of War is probably putting a lot of its marbles in terms of citing this authority, is that it is necessarily implied that defense activities have to continue.
Terry Gerton It sounds like this would not be something that the contractors themselves would initiate, but that their contracting officers who are also in the excepted or emergency category would be directing it. Would that be correct?
Stephanie Kostro That would be correct. What this class deviation does is give government employees who are still working during the shutdown the flexibility to go ahead and award task orders or delivery orders, due options, et cetera, in advance of the availability of fiscal year 26 funds. And they would be the protagonist in this. It wouldn’t necessarily be something that a contracting company would push for unless they saw something in this space that would qualify for one of these four circumstances and say, hey, have you considered introducing this class deviation?
Terry Gerton And so I’m imagining PSC has some advice for contractors who might find themselves in this situation.
Stephanie Kostro We have gotten lots of questions, Terry, about, hey, we think our work should continue, we haven’t gotten a stop work order, but we’re running out of fiscal year 25 funds. How do we go about talking to our contracting officers about this? This class deviation is in the public domain. We’re recommending that they go ahead and share that with them. Because as you know, during a shutdown, a lot of lines of communication are cut off. There are people missing. They’re not answering phones or emails. So having this class deviation filtered down to the people who need to employ it could take a while, so we are encouraging companies to go ahead and share this class deviation with folks and let them know that it is an option for them.
Terry Gerton Well, I imagine the longer this shutdown goes on, the more we’ll hear about potential deviations.
Stephanie Kostro I think that’s true.
The post Shutdown news for federal contractors: A new bill and a new rule first appeared on Federal News Network.