GOVERNMENT CONTRACTING WOULD FEEL THE FIRST WAVE OF DEBT CEILING CRISIS
Government contractors would be among the first to feel the pain of a failure to increase the debt ceiling according to a new article from Bloomberg Government. Stop work orders, pay freezes – including payment on previously submitted invoices – and stop work orders are all possible. Worse, because the US has never previously failed to raise the debt limit when needed, no one really knows the extent to which business could be disrupted. Contractors can expect confusion, even with agencies, on work that can still proceed and work that must stop. All of this would take place on the eve of the fourth quarter of the fiscal year, traditionally the busiest time for government work. The Treasury currently forecasts that the government will run out of the ability to pay its obligations sometime in mid-June without an increase, though that date could move depending on tax receipts. During a debt default the government can only pay bills with the cash it receives. According to Bloomberg, “A 2021 study by the Bipartisan Policy Center estimated that after a debt breach, Treasury would only be able to meet about 60% of its financial obligations with cash on hand.” Current prospects for a budget ceiling deal are uncertain. House Republicans have previously stated that any deal must include an agreement to reduce spending. Administration officials are offering no specifics on that front, expecting Congress to make the first move. It is worth noting that the last time a Republican-controlled House and a Democratic presidency faced a debt ceiling challenge that the situation was only resolved on the last possible day. That scenario is likely the “best case” outcome contractors can expect right now. Companies should be prepared for confusion, lost productivity, and more. Shooting the messenger, however, is not cost reimbursable per the FAR as far as we know.