Shutdown endangers jobs and payments at Oregon contractors

workers protest the government shutdown

Hundreds of payments could be delayed. 

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The government has been closed for business for 34 days, and its industry partners are feeling the pain.

Much attention has focused on the 800,000 federal government employees working without pay, but the impasse also sends a ripple through the private sector. It could delay payments and threaten workers’ livelihoods at the many Oregon companies that hold contracts with shuttered agencies.

“It used to be the benefit of working for the government was it was a reliable partner,” says Neil Bradley, executive vice president of the U.S. Chamber of Commerce. “This shutdown has managed to turn that absolutely on its head.”

The Chamber of Commerce sent a letter signed by 645 businesses in all 50 states calling on President Donald Trump and Congress to end the shutdown. The chamber estimated that 41,107 small businesses nationwide hold a total of $29 billion in contracts with shuttered agencies. Trade group Oregon Business & Industry signed the letter, along with chambers from Hillsboro, Beaverton, Eugene and other cities.

Using public data, the chamber estimated that the shutdown has jeopardized $31.5 million in contracts between Oregon small businesses and shuttered agencies. Statewide, 2,100 small businesses which contracted with these agencies for $416.5 million in fiscal year 2018 could be affected.

The value of contracts extending into 2019 between Oregon businesses, small and large, and the nine federal government agencies facing staffing shortages as a result of the shutdown adds up to $488 million.

State economist Josh Lehner says it’s hard to tell which Oregon contracts are at risk.

“It depends on how the contract is administered,” Lehner wrote by email. “Some are for a full year or two, so they should still get funding. But if it is month-to-month or piecemeal, then you’d see a bigger impact on business cash flows.”

The federal data show at least 900 indefinite or month-to-month contracts that could be affected in Oregon. That doesn’t include the many subcontractors working on each prime contract. The government’s obligations for these contracts in 2019 totals $17.4 million.

With about 53% percent of state land, much of it forests, owned by the federal government, it’s not surprising that the Forest Service, a subagency of the shuttered Department of Agriculture, is a large customer for Oregon companies. The biggest financial tie between Oregon industry and shutdown-affected agencies is aviation contracts with the Forest Service. Columbia Helicopters, Swanson Group Aviation and Aero Air all hold multi-million dollar contracts to build planes and helicopters for the agency.

A number of smaller Oregon contractors supply the Forest Service with firefighting equipment, food and maintenance services.

“It used to be the benefit of working for the government was it was a reliable partner. This shutdown has managed to turn that absolutely on its head.”
—Neil Bradley, U.S. Chamber of Commerce

The Department of Homeland Security is also a large partner with Oregon contractors. Vigor Industrial makes ships for the U.S. Coast Guard, and defense industry contractors including Columbia Helicopters and FLIR systems supply parts and equipment.

None of the companies contacted for this story responded. Professional Services Council president and CEO David Berteau says companies are probably reluctant to talk about the shutdown’s effects for fear of losing their competitive edge. They might have their employees “raided” by a competitor or face more competing bids for future work.  

The government has the money to pay its contractors, chamber officials say, and in many cases invoices are sitting on the desks of federal employees. The problem at many of the shuttered agencies is that the employee who approves those invoices has been furloughed. Some small businesses are waiting for payment on invoices they submitted as early as October.

“They’ve done the work they’ve paid the workers, and they’re waiting on the government to get paid,” Bradley says.

The Office of Management and Budget issued a guidance calling for federal workers who process invoices to return. The chamber says it has received a copy of the guidance but does not know when it will take effect.

Like essential federal employees, some small businesses must continue to work without getting paid or risk breaking the contract. That forces management to make tough choices about holding onto their assets or their employees. While government agencies let go of employees immediately, businesses often try to retain them as long as they can through the shutdown.

With the economy near full employment and more job openings than workers, Bradley says, contractors disillusioned by the repeated shutdowns might leave public service and never come back.

Private-sector workers let go because of the shutdown could face even worse fates than federal employees. The furloughed federal workers can still get loans because a law passed by congress mandating back pay for them enhances their creditworthiness. Private-sector employees have no similar protections.

“Companies can survive a week, but they may not be able to survive week seven.”
—David Berteau, Professional Services Council

The immediate hit to a small business from the shutdown comes from the revenue loss, but other problems will linger for the long term. A delayed order could hurt a business’s track record, making it tougher for them to compete for future contracts. They might lose talented employees to competitors.

“If you look at impact of companies, it starts slow and accelerates over time,” Berteau says.  “Companies can survive a week, but they may not be able to survive week seven.”

The Pacific Northwest Defense Coalition, an industry group that represents Oregon and Washington defense contractors, says it hit a snag planning its annual Homeland Security Summit. Department of Homeland Security representatives that were planning to visit Oregon have been furloughed. The event provides an important opportunity for local contractors to showcase their products to federal officials face-to-face.

A number of Oregon companies also hold contracts with the Departments of Transportation, Justice and Commerce, agencies hit by the shutdown. Multnomah County businesses hold the most contracts with the agencies affected. Marion County is next, due to the heavy concentration of government services in Salem.

Overall, the shutdown has not dealt a big blow to Oregon’s economy, but economists are keeping a close eye on the possible effects.

“The way we’re looking at it right now is that the shutdown is not yet a macroeconomic event,” Lehner says. “There is a disruption in terms of paychecks and federal spending, which will likely impact the quarterly GDP numbers slightly, but not too much.”

He added, however, that “the longer it drags on, the larger the impacts will be.”

For the long term, Bradley and Berteau say, the shutdown injects a feeling of uncertainty into dealings with the federal government. Even if the government reopens soon, planning for fiscal year 2020 could be affected.

The macroeconomic effect might be premiums built into government contracts to account for the uncertainty. Those extra costs will trickle down to taxpayers. Other small businesses might abandon government work entirely.

“The companies that do business with the government have self-selected as people who care enough about this work to deal with this bureaucratic dynamic,” Berteau says. “If we drive them away it will be hard to get them all back.”

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