Due to congressional turmoil budgets frequently don’t get passed or the government “runs out of money”
If these things happen it creates huge problems for contractors
Continuing resolutions (CR)
A CR happens when congress doesn’t pass a budget in time for the new fiscal year.
Example: Congress gets a budget from the president, but is still debating it and has not passed a budget on Sept. 30th (end of Fiscal year) so the next day on October 1 there is a new fiscal year, but: no budget so government programs don’t know if their new programs have been funded, so they don’t know what to do.
The mechanics: If Congress doesn’t pass a budget they can vote on and pass a CR which is basically an authorization for the government to continue funding activities from the previous year, at their same funding level, but not to start new projects
Why CR’s hurt:
Drives short term decision making: Typically CRs only last for a couple weeks or months, and when the CR ends, another CR might not get passed leading to a government shutdown or sequestration
Inflation/cost increases: Under a CR government payments are basically fixed, so even if the cost to provide the product or service goes up, the vendor is locked in meaning that their margins get hit.
Government: Government doesn’t get what they need (can’t start the programs that they want) and they get too much of what they used to want (the old contract that didn’t stop)
CR Examples: What this could mean for you
You’re on a steady contract: If you are on a steady contract (e.g. one that has pretty constant spending) then you are fine since the funding in the CR should cover your ongoing costs
If you are on an expiring contract: Then a CR may be a big win, since you’re contract may get extended while the CR is in place
If you won a contract that doesn’t start till next year: Then you are in trouble, since the contract isn’t funded it probably won’t start till a budget is passed. So:If you’ve hired people you may be months away from being able to employ them
Your government customer may start looking for other ways to meet their needs through established contracts that aren’t affected by the CR
Context: The federal government runs massive deficits each year, and to cover their spending the government borrows a tremendous amount of money. To curb deficit spending congress has instituted certain rules related to the amount of debt that the government can have, and if those debt limits are breached Sequestration can take effect
What is sequestration: If sequestration occurs federal agencies have to implement 8-10% budget cuts
Impact on contractors: If sequestration occurs federal customers start making drastic funding cuts which could mean
That your program is curtailed or cancelled
There will be fewer new solicitations, meaning fewer opportunities to win
A move toward Low Price Technically Acceptable contracts (A highly price sensitive form of contracting)
Context: If congress can’t pass a budget, can’t pass a CR, or doesn’t raise the debt limit the government can “run out of money” and “shut down.”
Impact on contractors: Fundamentally it depends on what you are providing
National security: If your contract touches on national security, law enforcement, or other “life and death” issues you’re probably safe
Everyone else: Basically, the government is going to stop paying you, and probably won’t back pay you, which puts you in a bind:
Do you layoff/furlough people and hope they come back post shutdown?
Do you keep paying people to do nothing and hope you don’t run out of money?
Can you keep making payments on any company loans you have?
Can your work just “Pause” or will there be big startup costs?