Why contractors are fuming at what’s going on at USAID

Tom Temin: And you’re kind of concerned about what’s happening governmentwide with contract cancellations. But the USAID’s situation for services contractors seems pretty acute. Give us the numbers you’ve come up with.

David Berteau: Well, Tom, the numbers are quite big from an invoice point of view. And these are invoices for work that was done prior to inauguration, but under contracts that were still in force at the time. And as you well know, Tom, the incumbent responsibility of any government contractor is to do that, which the contract requires them to do. And that’s what these companies have done. They’ve now got about $700 million in unpaid invoices for work already done for money already spent because, of course, they spend the money to pay their employees and other expenses and then they file for reimbursement for the government. And so for many of these companies, especially the smaller ones, they’re going to run out of cash if the government doesn’t pay its invoices pretty soon.

Tom Temin: The invoices have been canceled like the contracts or just simply gone unpaid?

David Berteau: They’ve just simply gone unpaid. And the government, of course, has the right to do this. And I should point out, Tom, from PSC’s perspective, it’s entirely appropriate and expected for an incoming administration to say how do we align the programs and projects with our priorities? And so the idea that you would pause while reviewing those is not unprecedented and it’s to be expected. And ultimately, some programs and projects you would think would be modified, some would be canceled and some would be continued. What you want to do is for those are going to be modified and continued, you want to have contractors ready to be able to do the work. Well, in order to do that. You have to help them stay in business by reimbursing them for their invoices. There’s actually not been any communication that says we’re not paying your invoices. They’re just not being paid. And if you’re following USAID, they’re not really communicating much right now because a lot of employees have been put on paid leave, paid administrative leave or even being terminated. So the communication is a bit short. More importantly, the funding is not being provided.

Tom Temin: Well, yes, new administrations do have the right to reevaluate programs, but the government does not have the right to not pay for invoices for legitimately done work. And there’s actually statutory requirements for paying in a timely way. Are there not?

David Berteau: There are. And then there’s two elements to this. No. 1, the Prompt Payment Act, which was passed in 1982 when President Reagan was in office, requires the government to pay invoices within 30 days after they’ve been delivered and accepted. Now, the government can go longer than that. If they do, they pay a premium. Currently, it’s like the 10-year T-bill rate, so about 4.65% premium. The problem is that for companies that don’t have enough cash in hand because they’ve spent their cash and now are waiting for the reimbursements, they can’t borrow money at 4.65%. And, of course, there are lending institutions, even those that have a line of credit that’s open. The lending institutions are reading the same executive orders and the same newspaper articles and they’re saying maybe you’re not such a good risk as you were before. But there’s a larger issue here, Tom, that the government finance business and the financial markets support government contractors because for centuries now a government invoice has been as good as cash. And if you’ve got an invoice, the government pays its bills. And that’s something that America has always done that. The full faith and credit of the government and we need that to continue here. At what point does going slow on paying invoices at this order of magnitude so that it puts companies out of business? At what point does that increase the risk premium of doing business with the government and actually increase the government’s costs across the board? These are things that aren’t immediate problems, but are things that you need to take care of going downstream.

Tom Temin: Right. It could be that at USAID, the people that process invoices, there are accounting staffs that are not at work. And so they’re probably sitting there in stacks, so to speak, proverbial stacks.

David Berteau: You may have a point there. The government customers of our member companies have had a lot of things happening in their universe as well: a hiring freeze, return to office, the retirement, it’s not a buyout. It’s not a retirement. But the separation offer that was expiring last week, but soon to be determined by a judge, whether it’s legal or not. All these things are probably not having government employees want to focus on the contractors, but they need to because, in fact, work will continue in this agency and other agencies. Contractors will be needed. And one of the real benefits, I think, Tom, that comes into play here is if you define the result properly and you contract for them properly, contractors can deliver those results faster at lower cost and better than they’re being done right now. And so there’s a lot of opportunity for improving effectiveness there. That’s certainly something that we think the DOGE should pay attention to.

Tom Temin: Yes, the DOGE should keep its own feet out of the range of fire. We’re speaking with David Berteau, president and CEO of the Professional Services Council. And the backdrop to all this is what in the heck is going to go on with the 25 appropriations for what’s left of the fiscal year, let alone 26 deliberations?

David Berteau: Well, we’re now in February. So we’re a little over one-third of the way through the fiscal year for FY 25. And at one level, Congress had already moved a lot, right. There were appropriations bills for all 12 subcommittees reported out of the House committees reported out of the Senate committee, consistent with the cap that was put in place way back in 2023, the Fiscal Responsibility Act caps. Now, though, under the budget resolutions, which are going to use the reconciliation to deal with the border and increases in defense spending, those caps are called into question. We’re seeing the Senate Budget Committee will be marking its budget resolution up later this week. The chairman’s mark was tabled last Friday and it shows significant increases for Homeland Security, increases for Defense and offset with decreases in other parts of the cabinet departments. This actually calls into question the whole nature of the existing caps presumably imposes new ones. Let’s see, when does the CR expire, Tom? I believe it’s March 14th.

Tom Temin: Something like that. Yes, that’s right.

David Berteau: And if you have to start all over again with appropriations, it seems a little unlikely that we’ll get those budget resolutions passed, agreed to by both houses of Congress. Appropriations Committee remarked the bills to new numbers and get them done by the 14th. So at a minimum, we’re probably facing another continuing resolution beyond March 14th. How far out? Who knows?

Tom Temin: Right. And then there’s the debt ceiling and who knows what’s going to happen on that one. That’s a little bit past all of this.

David Berteau: Well, it’s hanging out in the sidelines here. We don’t know when default day will come along. It might be May, it might be June, it might be July. In the past, when we’ve done a debt limit deal for really about the last 15 years or so, it’s been tied to a cap. Well, if we get new caps under budget resolution, maybe the debt limit will be extended as well. But that’s not in the chairman’s mark. So all three of these pieces, FY 25, the budget reconciliation and the debt limit have to merge together into some kind of coherent timeline that actually keeps the government open, keeps America in business.

Tom Temin: Sure will say that the debt ceiling question is in the penalty box, not the sidelines, because it’s still hockey season and football is over.

David Berteau: It’s still hockey season.

Tom Temin: Fair enough. And then there seems to be a lot of impoundment going on. And again, there’s a bright line from a Nixon-era law about the government not spending money that was appropriated for a specific purpose. And we’re seeing this happen.

David Berteau: We certainly are seeing a lot of talk about it. Russ Vought, the new OMB director, he was confirmed last week in sworn in. In his confirmation hearing, pointed out that, in fact, Impoundment Control Act is the law and he intends to follow the law. But he also pointed out that he thinks it’s unconstitutional and the administration intends to look for cases to bring court cases to bear on that and hopefully get that Impoundment Control Act declared unconstitutional. By the way, it’s 50 years ago that the act was passed in 1974 and a Supreme Court decision in 1975 not only held that it was constitutional, but in fact said that impoundment was illegal even without the act under the constitution itself. So this is really a serious constitutional question. I think the administration has indicated, in fact, President Trump wrote an article back in 2023 that he said he thought impoundment was unconstitutional. So we can certainly expect the administration to push for the court case. I don’t know which court case will come into play. Maybe there’ll be more than one. But in the meantime, Congress appropriates the funds and they’re not spent. That creates a lot of turmoil in the government business.

Tom Temin: And just getting back to the unpaid contractors at USAID, is the PSC, is the council doing anything? Who do you write to and what can you where can you raise this question? Maybe Congress?

David Berteau: We wrote to Secretary of State Marco Rubio, who is now also the acting administrator of the U.S. Agency for International Development, to call his attention to this and urge him to pay those invoices. I mean, this is work already done that they had to do under the contract. And you want your contractors to comply with the contract in order to be able to have work done in accordance with the government’s ideas and priorities. So we’ve urged him to do that. We’ve put out a press release on this. We’re working the Hill and other avenues as well. This is of great interest to the local economy because absent money, companies have to lay people off. And there’s thousands of about 3500 of our member company employees have now been furloughed or laid off, most of them in the Virginia, Maryland, D.C. area. So we’re calling attention to that. We’re all concerned.