Government Contractors to Lose Out on Shutdown Pay, Dragging Down Economy
(Bloomberg) -- Like others caught up in the U.S. government shutdown, Brent Langdon has been cutting back on spending and is worried about his next mortgage payment.
Yet unlike the hundreds of thousands of federal workers affected by the funding impasse, Langdon can’t look forward to eventually getting back pay because he is a contractor.
“It’s very concerning right now,” said Langdon, who does information technology for the Agriculture Department in Colorado. “I’m looking for side gigs, something to help pay the bills.”
The cumulative effects on Langdon and more than 1 million other contractors is enough to slow U.S. economic growth. The White House on Tuesday doubled its estimate of the cost of the government shutdown on the economy -- saying it hadn’t been counting the effects on government contractors.
As the government shutdown that began Dec. 22, federal contractors are being hit particularly hard by the budget impasse over President Donald Trump’s demand for a border wall. On Wednesday, he signed legislation authorizing back pay for federal government workers once the shutdown ends.
Yet that doesn’t include contract workers such as Langdon, who asked that his employer not be named.
Council of Economic Advisers Chairman Kevin Hassett said the administration’s new estimate of the shutdown’s cost to U.S. economic output is a reduction of 0.13 percent every week, not 0.1 percent every two weeks as previously estimated.
“We’ve been watching the actual effects, and noticing that the impact that we see on government contractors is bigger than the sort of staff rule of thumb anticipated,” Hassett told reporters on Tuesday.
About 1.2 million government contractors have been ensnared in the shutdown ranging from cooks and custodians to employees of consulting giants like Deloitte LLP and Accenture PLC, according to Paul Light, a New York University professor who studies federal workers.
“What’s driving people nuts in here in the contracting community is the uncertainty,” Light said in an interview.
Data compiled by Bloomberg found that federal contractors could be out as much as $200 million a day in lost or delayed revenue from the shutdown.
Among the most vulnerable major U.S. government-services companies, is Science Applications International Corp. Executives of the company said at a Jan. 7 investor day conference that the contractor was losing $10 million a week in revenue because of the shutdown. The government was behind on about $40 million to $50 million in payments.
At consulting firm Grant Thornton LLP, about 20 percent of the 1,000 employees in its public sector practice have received stop work orders from the government, said Robert Shea, a principal at the company.
So far, Grant Thornton has not had to resort to furloughs or layoffs, “but at some point it becomes untenable,” Shea said in an interview. “Many of our peer organizations don’t have the ability to absorb this kind of thing and at some point we won’t either.”
Some contractors that have completed work are unable to get paid for it because the offices that would process their invoices are closed, said David J. Berteau, president of the Professional Services Council, a Washington trade group that represents companies both large and small that do business with the federal government. And if the shutdown goes on much longer, some smaller contractors may be forced out of business.
“We are seeing widespread effects and they are increasing each day,” he said.
“As each day drags out in this shutdown, more and more contractors are receiving a notice to stop work,” Berteau added. “If the government is not paying their bills, they don’t have the money to pay their people and they may have to close their doors.”
MetTel Inc., a New York-based telecommunications provider with about 500 employees that won a piece of a $50 billion contract to provide the federal agencies with communications equipment, has been reducing its contractor hours, but so far has been able to avoid job cuts, said senior vice-president Diana Gowen.
“We spent lots of money on bidding proposals and getting our back office systems approved,” Gowen said in a phone interview. “All of that is, as you can imagine, an expensive endeavor with at this point in time no return on the investment. As a small business it is a little painful.”
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