page updated on August 24, 2017

How does a Government Furlough Affect Contractors?

During a government furlough, workers go on temporary, unpaid leaves of absence. This happens most often due to economic conditions, where a school district may not have enough money to pay teachers for the full year. It can also happen due to a manufactured crisis, such as the US Government shutdown of 2013. In the latter case, the Tea Party rebellion in the Republican party produced an impasse in Congress around producing a yearly budge and, as a result, led to no budget and no Congressional authorization for most federal agencies and activities.

Without permission to spend money, the government lacks permission to pay employees, and thus they must not work.

As sad as the situation may be, the consequences make sense for federal employees. No budget? No work.

What about non-governmental agencies which have contracts with the federal government?

Do Government Contractors Get Furloughed or Paid During a Shutdown?

The short answer is it depends.

According to the US Department of Defense shutdown press release, civilian employees of the DOD are subject to an emergency furlough. Military personnel are not subject to the furlough. Neither are contractors under active contracts.

That last sentence is important. Without appropriations—permission from Congress to spend money—government departments will find it difficult to sign new contracts and extend existing contracts. Some departments do have special exemptions for necessary positions such as emergency services, but the longer the shutdown lasts, the more contractors will be affected.

Are Furloughed Workers Eligible For Back Pay After a Shutdown?

It depends.

If and when Congress passes a budget or a continuing resolution to end the federal shutdown, it may authorize retroactive payments to workers who were furloughed. The same goes for contractors. Without a budget deal in sight at the time of this writing, however, it's difficult to predict when this unnecessary stalemate will end—or how.

At the time of this writing, the shutdown has ended. Unfortunately, it appears that furloughed contractors will not get back pay. For a government contractor to receive back pay, the contracting organization must receive back payments from the government. While Congress may release funds to pay furloughed federal workers as a symbolic gesture, Congress has currently not done the same for businesses which receive federal funds. This includes contractors.

Worse, these contracted companies may receive penalties for not meeting federal deadlines.

What Are the Effects of a Government Shutdown on Contractors?

Besides the biggest obvious problem of delayed payments, uncertainty is a significant problem from a government shutdown. No one knows when or how a shutdown will end. How is a defense contractor supposed to plan for these events?

It's easy to make the political case for restoring back pay of a park ranger who tends the Washington Mall or a worker in the VA who helps process insurance requests. It's not so easy to argue that a data entry worker helping to file IRS audits is a necessary worker—and yet that person has a job and bills and performs a function for the orderly operation of our democratic republic.

Assigning blame is easy. With the Republican party in Congress demonstrating its willingness to use the paychecks of millions of Americans as leverage to undo the effects of the 2012 elections, can you blame a government contractor for being wary of signing anything right now? A fraction of the members of one half of one third of the federal government is causing the US Government to lurch from crisis to crisis. Billions of dollars of spending and potential spending (not to mention paychecks of workers who spend that money on rent and mortgages, on food, on clothing, on utilities, on entertainment) are in limbo until a few dozen men and women in Congress stop holding the lives and livelihoods of millions of people hostage.

Fortunately, the October 2012 shutdown ended within a couple of weeks. Things could have been worse. Even though Tea Party representatives claim that they have won a moral victory and proven their point, and even though they publicly reserve the right to fight this fight again in the future, the president and more responsible Congressional leaders agreed on just enough that the threat of global economic collapse is less likely in the future. To be sure, the debt ceiling is still an issue and there will be fierce debates over raising that limit. This is irresponsible behavior and should be changed, but the threat of a government shutdown is smaller now thanks to the resolution.

Even so, what a failure of leadership to use the paychecks of federal workers—contractors and otherwise—as bargaining chips to attempt to extract concessions from the President. The legislative process works only when all actors act in good faith. The Tea Party is not acting in good faith.