The United States has a history of federal shutdowns that rendered major industries in acute debts, employee losses, and other major inconveniences.  The most recent government shutdown just happened last year during December.  With the start of the new fiscal year in October, Congress passed only five out of a total of 12 bills, detailing the spending levels for the government sectors.

The lawmakers only had the end of December to enforce legislation for the remaining seven appropriation bills. However, they were unable to pass a budget and caused the funding to lapse. This resulted in a partial federal government shutdown.  It has had a noticeable impact on food services, Medicare, and even construction management in the federal sector.  However, even when this shutdown didn’t carry on for long, America has already had a total of 18 shutdowns already.

Understanding a Government Shutdown

The partial or complete shutdown of the federal government is regarded as a “Government Shutdown”.  It is when the President of a country fails to reach a final agreement on funding a bill.  In most cases, the whole government may not shut down. However, the federal sectors that do suffer a hit end up losing social security and job security.

The government workers and contractors working for projects that are considered “unnecessary” end up suffering profusely.  Most of the federal agencies and programs heavily rely on government funding.  Every single year, the government must declare an annual budget legislation detailing how many funds will be going to each government sector.  If the government decides that a certain industry or program is not needed or is straining the funds, then it conveniently holds it until the shutdown ends.

Effects on the Economic System

If the government shutdown is prolonged, the economic system can collapse.  It causes the GDP ratio to plummet significantly and may even pave the way for a recession. Naturally, when the funding stops, major projects are delayed while federal employees suffer a huge hit.  Infrastructure projects like highways and airports come to a halt because the funding is deemed unnecessary.

Due to the shutdown, most of the profit-earning project management slows down.  According to the Macroeconomic Advisers, an independent research firm widely recognized as one of the most respected forecasters of the US economy, almost 36% of federal employees will have to work without a paycheck for months on end.  This can disrupt their workflow, the stock market drops, and economic activities are partially seized.

During each of these shutdowns, federal employees were furloughed and their productivity had been severely dampened. National parks were temporarily shut down, while construction projects came to a standstill.  Even tax refunds and federal loans were closed.

Government Shutdown and Construction Management

There is no doubt that a government shutdown does impact the construction industry in many ways. All the construction projects that are under federal funding end up losing on profits and employee productivity. The impact can be understood in the following ways.

Firstly, all the non-essential construction projects are suspended until the shutdown is lifted.  This will happen when the government comes to a single billing agreement on the federal operations.  Secondly, the employees suffer a major hit.

This is because throughout America’s history, most of the presidents have used their discretion to lay off construction workers in thousands. Construction contracts for training, civilian projects, major maintenance and recruiting all end up losing their significance because they’re not ‘essential’.

Let’s have a detailed look at how government shutdowns have affected the construction industry all these years.

• Increased Costs

Many construction projects, especially airports, highways, and high-rise buildings, are temporarily suspended until the shutdown ends. This leads to a sharp rise in the overall administrative and project costs of the construction industry.  Federal taxes will eventually go up and impact the cost of construction raw materials, technology, and project management.  With limited funds, only a specific number of construction projects will be completed and that too with high costs.

• Delay in Construction Projects

The construction projects that are fully funded prior to the appropriations will not experience a cost increase. However, if a certain federal project like a commercial building is located in a federal facility, then it will be stopped.  

In any case, construction administration and contracting officers will be categorized as non-essential employees. They can be furloughed depending on the severity of the government shutdown. For this, many construction companies will have to pause their projects because the due payments wouldn’t have been made.

Late payments and project delays will fiercely impact contractors working in the Department of Agriculture, Housing and Urban Development, and the Transportation Industry.  For example, in the recent havoc incurred by Hurricane Sandy, the federal government launched a series of construction projects to rebuild and revamp houses and buildings.

The recent shutdown meant that a loss of $150 million funds will stop the repair work for Hurricane Sandy and the ongoing construction on the Second Avenue Subway. Critical construction projects, therefore, will be delayed due to a lack of funding and employees.

• Workforce Hit Hard

Federal contractors who heavily depend on government funding for their construction services end up being furloughed.  Despite being an essential worker, as compared to a non-essential federal employee, the worker will still not be paid.

Being furloughed is only a ‘vacation’ for those contractors who have other means of income.  If construction services and contracts are the main source of consistent income, the workers end up in debt and severe losses.

In fact, the recent government shutdown, furloughed a total of 145,000 workers and closed off 112,500 federal contractors working in the Washington Metropolitan Area and even the GDP reduced by a whopping amount of $2.8 billion in Washington alone.

• Missed Business Opportunities

Because of the lack of funds, project delays, and due payments, a small construction company could definitely miss out on potential business opportunities. Many small construction businesses usually seek loans from banks or bigger contractors. They may also hire a project assistant for consulting on key project areas.

However, during a shutdown, all the loans and funds are put on hold.  The construction businesses then end up losing on key contractors and projects that could bring the country a lot of GDP growth.

In a Nutshell

Dealing with a government shutdown can be difficult for construction contractors as well because most of their projects are publicly funded.  Construction companies should consult lawyers and their Construction VA in consolidating their contracts. 

A Construction VA can help them predict any financial losses and the extent of the impact. If you’re looking for expert virtual services for your construction business, contact us today.