Tech Companies Share Shutdown Losses, With Little Chance of Back Pay

Xconomy San Francisco — 

As federal agency employees miss their first paychecks today due to the partial government shutdown that began Dec. 22, federal contractors and their workers—including technology professionals—face a loss of income that they may never recover.

Big technology companies such as Oracle (NYSE: ORCL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN), as well as smaller tech firms, are among the many contractors serving federal government agencies, which may stop paying their bills if they haven’t been exempted from the shutdown, according to the Professional Services Council, an advocacy organization for federal contractors. Government stop work orders have been going out to private companies under contract, the group says.

Federal employees can hold onto hope that they’ll be paid retroactively for the days when they were sidelined or told to work without pay, because the government has delivered back pay after past shutdowns. But government contractors have no certainty of being compensated when their services are suspended.

“There’s no guarantee that they do,” says Kevin Cummins, a Professional Services Council executive who focuses on tech companies. At this point, contractors are left to decide whether to keep their workers on the payroll, without knowing when the shutdown might end.

While hundreds of thousands of federal employees struggle to pay their bills, the revenue lost by government contractors could also send ripples through the economy. Tech services are now integrated into almost every kind of business and organization, public and private. Among the shuttered federal agencies are the departments of Commerce, Homeland Security, Justice, Transportation, and Treasury. The Food and Drug Administration has also halted some of its operations, as Xconomy’s Corie Lok details in a story about the challenges for biotech companies awaiting FDA drug approval decisions.

One federal initiative that could suffer during the shutdown is the Trump administration’s drive to modernize the government’s computer infrastructure, beef up cybersecurity measures, and mine the value of data as a strategic resource, Cummins says. “The federal government has a major legacy IT challenge,” he says.

Under a shutdown that would become the longest in U.S. history if it lasts through Saturday, it’s hard to peg what types of tech companies might suffer the most, Cummins says. Whether they’re cybersecurity consultants, cloud service providers, or sellers of subscription business software, if the government is one of their biggest clients, they’re more vulnerable, he says.

“It depends on how diversified the company is,” Cummins says.

According to a report by CNN, the tech companies that draw a significant percentage of their revenue from government work include Oracle, Microsoft, the cybersecurity company ForeScout Technologies (NASDAQ: FSCT), and the open source software company Red Hat (NYSE: RHT), which announced in October that it had agreed to be acquired by IBM (NYSE: IBM).

While technically skilled professionals probably draw higher pay on average than the custodians, security guards, and other contract workers hard hit by the shutdown, tech workers can still feel the bite of lost income acutely, Cummins says.

“Anybody could be living paycheck to paycheck,” Cummins says.

The Professional Services Council this week urged President Trump to work with Congress  to end the shutdown stalemate, pressed Congress to prioritize full year appropriations for federal agencies, and advocated for legislation that would provide back pay to federal contractors who were temporarily laid off. The group also offered an online resource center for its members.

Back in October, the contractors’ association called on Mick Mulvaney, then director of the federal Office of Management and Budget (and now also acting White House chief of staff) to prevent the chaos and confusion that had plagued government contractors during past shutdowns by modifying the contract language and contingency plans of OMB and other federal agencies.

These documents could specify in advance what contract work could continue during a shutdown, rather than leaving contractors without guidance because their government liaisons have been sent home, Alan Chvotkin, Counsel to the Professional Services Council, said in the October letter to Mulvaney.

“How do contractors let their employees, subcontractors, and vendors know what to do?” the council asked Mulvaney in a white paper outlining the federal contract changes it was advocating.

Even if contractors were authorized to carry on with a project during a shutdown, they might still be benched under a rule that requires a federal employee to be present while the work is done, Cummins says.

Aside from the immediate costs to tech companies and the government alike, the negative publicity surrounding an extended shutdown could have long term consequences as government agencies try to recruit and retain top technical talent—especially in cybersecurity, Cummins says.

Government already has a hard time competing with the private sector on the salary scale, Cummins says, and the prolonged shutdown signals IT specialists, contractors, and their employees that government work is an unstable source of income.

“Plus, government has no stock options,” Cummins says.

Photo of U.S. Capitol, Washington, D.C. courtesy of Kevin Dooley under a Creative Commons 2.0 license