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Consultants and IT contractors to the US public sector have been tapping debt markets for emergency cash, cutting executive pay and putting staff on unpaid leave as the costs of the federal government shutdown mount.
Executives have detailed the growing impact in quarterly earnings calls with analysts over the past two weeks and in increasingly concerned messages to industry groups, as the budget impasse dragged on and the shutdown became the longest ever.
The effects — including work stoppages, delayed payments and the postponement of new contracts — have compounded financial woes from a federal cost-cutting drive by the Trump administration’s Department of Government Efficiency (Doge).
The defence contractor General Dynamics, whose technology consulting business largely services the US government, said after its third-quarter earnings that it had tapped the commercial paper market “to support our liquidity during the government shutdown in the event of slow or non-payment issues”.
Chief executive Phebe Novakovic told analysts: “We’re in the midst of a government shutdown with no end in sight. The longer it lasts, the more it will impact us, particularly the shorter-cycle businesses.”
Booz Allen Hamilton said the shutdown had brought “an additional layer of friction into the system” on top of Doge-related cuts that have prompted two rounds of lay-offs this year. The technology consulting group, which gets 98 per cent of its $12bn in annual revenue from the federal government, said it was losing an extra $1mn of revenue per day in paused contracts, and $1mn of profit every two days.
ICF International, Nasdaq-listed technology consultant, said it had cut the pay of its top executives by 20 per cent for the duration of the shutdown. Chief executive John Wasson said the shutdown has been “painful, but manageable, and we view this as a temporary situation”.
“While we have taken steps to reduce costs associated with work that has been curtailed, we currently plan to retain key staff, which will position us to quickly recoup the majority of these revenues in future periods,” he told analysts.
“We have been playing Doge-ball all this year, so it has been a chaotic year and very difficult,” said Brandon Muniz, chief executive of the Maryland-based IT contractor HeiTech Services, which has close to 200 employees and around 5 per cent of its workforce on unpaid leave.
“We as small businesses are happy to serve the government, we just need to know what the direction is so we can build towards that.”
While the longest ever, this shutdown has had less of an immediate impact on contractors than earlier examples, in part because the risk was well telegraphed. Small businesses were bombarded with advice on how to prepare themselves, including by setting up lines of credit with banks to cover unpaid invoices from prior work, and government officials used September to pre-arrange funding for ongoing projects where possible.
The financial impact ratchets up over time, however, as pots of funding dry up. Early in the shutdown, large companies directed employees to use the downtime to take mandatory training classes, but are increasingly forcing them to use vacation days. Executives say privately they will have to make tougher choices if the budget impasse is not resolved soon.
The shutdown will also permanently set back the start of new projects that consulting firms have been banking on.
“These companies are already dealing with a shortage of procurement personnel” after Doge laid off staff across almost every government department, said John Caucis, analyst at Technology Business Research “What few were left are probably furloughed, so they can’t get the ball rolling on new projects. There’s no one to talk to.”
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