Federal contractors strain to stay afloat as shutdown grinds on

During the 2013 federal shutdown, Alba Alemán found herself with no way to pay her workers at Citizant, a federal IT contractor based in the northern Virginia suburbs outside Washington.

So she came up with a system to let her workers pool their vacation days and donate them to colleagues whose contracts were suspended so that she could afford to keep paying them during a shutdown. Now, her employees have donated 2,000 hours of time off — but deep into the fourth week of the longest shutdown in modern history, she’s again feeling the strain.

“We’re still committed to protecting our workforce, but strategies are changing,” said Alemán, a third of whose 175 employees are on contracts for shuttered agencies including the Department of Homeland Security, the Department of Justice and the IRS.

Unlike federal workers, contractors have no guarantee of getting back pay once the government reopens.

A top White House economic adviser acknowledged this week that the economic effects of the shutdown are magnified because so many contractors are affected, cutting growth 0.1 percent every week rather than every two weeks as the administration initially assumed.

“We’ve been watching the actual effects, and noticing that the impact that we see on government contractors is bigger than the sort of staff rule of thumb anticipated,” White House Council of Economic Advisers Chairman Kevin Hassett told reporters on Tuesday. “And we subsequently, right now, think that it’s about a tenth of a percent a week, not a tenth of a percent every two weeks.”

That creates a pinch for employers, some of whom — like Alemán — are trying to find ways to make up the shortfall themselves, rather than passing it on to their employees.

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At least 2 million contracted workers could be affected by this partial shutdown, more than twice as many people as the 800,000 federal workers whose jobs have been paused, according to Paul Light, a professor of public service at New York University.

“These are all estimates based on actual federal government spending for specific goods and services,” said Light. “They are estimates that likely undercount, not overcount, the total number of Americans affected.”

Alemán says her bank was willing to extend her line of credit, and she has kept the equity line of credit open on her home to fund payroll if needed.

She hopes the government will reopen before she has to confront what she is calling her “week six modeling options,” based on what she says she knows other small businesses have done already. The first is to pay employees 80% of what they are owed, she said. The second is to let her staff go so they can apply for unemployment, then rehire them when the government opens again, and the third is to institute rolling leave without pay. She’s concerned that if she gets to that place, she’ll start to lose her top talent.

“We as a nation will not recover for years. It’s taken us so long to get great talent, and after this we are not going to attract these people back. People are going to protect their families and work in an industry where their work matters,” said Alemán.

TMR, another small IT company in northern Virginia that contracts for the Department of Defense, the Department of Homeland Security and the FBI, is concerned about that too. Right now, it’s able to pay its employees but it notes that it’s not able to collect money owed to the company from its government contracts.

“Companies are starting to lay off employees. This is becoming serious,” said Linda Carr, president of TMR. “The government frequently makes decisions without considering the second and third order effects of their decision. You should not run a business, house or a government with that mentality.”

Bigger contracting companies like Booz Allen Hamilton, which has 26,000 employees, often have more capital to take care of their workers during a shutdown. The company says it’s able to pay its employees affected by the shutdown, and is now focusing on redeploying them to other contracted assignments that are currently funded by the government.

Earlier this week, Alemán did something she’s never done before and wrote an open letter to the President, which she posted on LinkedIn.

“I don’t know how much longer we can all hold out,” she wrote. “I implore you, Sir, please be the hero this week. With over a million Americans suddenly out of work and unable to protect and serve our communities, swift and decisive action is required. You are the President of ALL Americans.”

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