October 1, 2013
Dear NDIA Members and Friends:
As of 12:01 this morning a government shutdown has gone into effect. Yesterday the House passed several continuing resolutions (CRs) for government funding which included different policy riders to delay or otherwise inhibit the implementation of the Affordable Care Act (ACA); each one was tabled in succession by the Senate. Early this morning the House voted to establish a bicameral conference committee to negotiate the differences between the two chambers, and that too was tabled by the Senate shortly after it convened, leaving the path forward unclear.
As painful as a shutdown may be for government employees, in some respects the impacts are worse for federal contractors. While those federal contracts with funding from fiscal year 2013 will continue, federal contracts funded by fiscal year 2014 dollars face the discontinuation of federal payments until Congress passes a spending bill. (For specific information on federal contracts that impact your business, we recommend you seek the advice of your company’s contract experts and the relevant federal contract officials for the most accurate assessment of your company’s situation.) Unlike federal employees, during previous shutdowns contractors have not been retroactively reimbursed for lost work. While some companies may make their employees whole, they must do so without the retroactive support of the federal government.
The Office of Management and Budget provided guidance to departments and agencies in mid September about how to address contracts and grants during a shutdown. We believe this information will help you and your staff as you consider the impact this shutdown has on your company. The document is available here and the particularly relevant information begins on page 5.
Although it is not clear when the government will be funded again, another critical date is likely to force some resolution before the month is out. On October 17, the United States will exhaust its statutory authority on federal borrowing and the Congress will need to authorize more debt to allow the government to make good on its current obligations. While no one is quite sure what might happen in the event of reaching the debt limit without an increase in authorized borrowing, it is certain that the federal government would have to delay the payment of its obligations until revenue receipts provide the needed funds. With obligations vastly outstripping revenue receipts, this delay would inevitably grow lengthier and more painful with the passage of time, as Social Security, military pay, and other obligations pile up. Of particular note, the Treasury faces a $12 billion Social Security payment on October 23, a scant six days after the debt limit is reached. Because our country has never failed to make good on its obligations, the federal government does not presently prioritize its payments; whether and how it might do so is anyone’s guess at this point.
In the meantime, in case it may be of use to you, the Office of Personnel Management has posted its furlough guidance here, and the Office of Management and Budget has linked to all federal department, agency, and program shutdown contingency plans here. Some of the linked websites, including the website for the Pentagon’s contingency plan, have had connectivity issues this morning.
Both the House and Senate are presently in session and their leaders are presumably discussing the way forward. We continue to hope Congress will resolve these fiscal challenges quickly and in the least disruptive way possible. When some information is available on the parameters of a deal, we will provide that information to you.
Lawrence P. Farrell Jr.
Lt. General, USAF (Ret.)
President and CEO
National Defense Industrial Association (NDIA)