While some industries grapple with slowdowns, many government contractors have been gearing up during the pandemic. The jobs they perform—from vital military and intelligence tasks to supporting the Federal Emergency Management Agency as it coordinates the national response to coronavirus—are especially vital right now. In most cases, contracts from the federal and state governments remain in force, and work continues. And contractors’ government partners are doing everything they can to help them succeed.
Yet, like the unknown future of the broader health crisis, what lies ahead for contractors remains uncertain, with challenges to come. Edward Spenceley, senior vice president and national government contracting specialist for Bank of America Global Banking and Markets, answers questions about how government contractors can respond now and in the months ahead.
What are the greatest challenges government contractors face right now?
Because so much of what they do is considered “mission essential” by the government, few contractors have seen stop-work orders. Yet contractors’ biggest fears are similar to those of companies in other industries: How will state and local stay-at-home orders affect their ability to do the work they’ve contracted to do? Will some government projects shut down?
Government agencies recognize the need for this essential work to continue during the crisis, and they’ve taken extraordinary steps to guide contractors on policies and procedures and help ensure that payments are processed quickly—ahead of schedule, in many cases. The government also has activated contingency plans to help people work virtually. That’s not always possible—if someone is working with classified information in a sensitive compartmented information facility (SCIF), that can’t be done from home. But even in those cases, the government often looks for other facilities that are closer to where someone lives, or may offer an extension on that contract.
Those accommodations help the work on existing contracts to continue. But as government processes slow down because of health concerns and competing priorities, many new contracts are getting pushed back 30 or 60 days. This can cause cash-flow challenges for companies that need to keep employees in place and ready to go while waiting for the new contracts to take effect.
Companies being recruited for government work for the first time may also face special challenges. A ventilator manufacturer might be asked for five times its normal production. But it’s not easy to build up the capital and personnel necessary to go from making 50 ventilators a week to making 250 while also learning to navigate federal contracting requirements, including regulatory oversight, special accounting systems and billing procedures. Companies want to help in this crisis. But there may be obstacles for those that don’t have experience as federal contractors.
What key internal and external developments should contractors be reviewing?
In a situation that’s changing every day, contractors need to be in direct communication with the contracting officers in the agencies they work with. Many—including the Army small business office, the Defense Intelligence Agency, the Special Operations Command and others—are posting vital information on a daily basis.
What’s important internally is how companies react to what they learn. How long can they sustain having their people working virtually? What impact does that have on individuals’ performance and the company as a whole? First and most important is workers’ health and welfare. So there are physical, emotional and spiritual considerations that companies need to look at. Then they need to consider the associated costs. There’s normally no leeway in a contract—payments to contractors are predetermined. But in cases where there are unforeseen expenses because of coronavirus—for example, high costs related to sick leave for workers—contracting officers may be able to increase payments.
Some contractors are facing supply chain difficulties, with scheduled, normally reliable trucks not arriving with components. And currently, contractors may not have any recourse. But looking ahead, those who have been depending on a single supplier may want to identify two or three others as backups.
What steps should government contractors consider now?
Today, even more than under normal circumstances, contractors need to communicate with their contracting officers, as well as their CPAs, attorneys and bankers—all specialists in the ins and outs of working with government clients. Now is the time for contractors to reach out to them and discuss “what-ifs.”
What if there’s a cash-flow slowdown from government clients? What if the rules about working in a particular installation change, and contractor employees are locked out of the facility? Can or should contractors apply for government assistance provided by the CARES Act, even if they’re still billing the government for work? Those are exactly the kinds of questions your banker, your CPA and your attorney can help you answer.
This industry is long accustomed to change. Contractors have supported military operations in Afghanistan and Iraq, and have navigated earthquakes and hurricanes, sequestration and government shutdowns. Mission success often depends on the ability to adapt to and overcome unforeseen obstacles and to engage with partners inside and outside the government. Government contractors are good at that because they’ve always had to do it. Now they need that experience, those skills and the help of those partners more than ever.