In this episode of Fed Gov Today with Francis Rose, James Carroll, Chief Executive Officer of the Professional Services Council and former Deputy White House Counsel, joins Francis to discuss one of the lesser-known but most damaging consequences of the ongoing government shutdown — its impact on the nation’s federal contractors.
While most headlines focus on furloughed federal employees, James highlights a different group caught in the middle of the funding lapse: hundreds of thousands of contract workers who keep federal programs running but have no legal safety net. For them, a shutdown doesn’t just mean temporary uncertainty — it can mean financial ruin.
Contractors Are Left Without Protection
James explains that there’s a crucial distinction between federal employees and contractors when the government shuts down. By law, federal workers are guaranteed back pay once appropriations are restored. Contractors, however, receive no such protection.
“Our member companies are definitely worried,” James says. The Professional Services Council represents 400 companies and close to a million workers across all 50 states and territories. Many of these firms, especially small and mid-sized businesses, rely on steady payments from federal contracts to cover payroll and operations. When stop-work orders arrive, those payments stop instantly.
“The concern,” James explains, “is they’re just not going to get paid.” Without revenue, these companies face immediate cash flow problems. Employees may be laid off, bills go unpaid, and for smaller firms, even a short shutdown can threaten their survival.
A Familiar and Costly Pattern
James points to the 2018–2019 government shutdown — the longest in U.S. history — as a cautionary tale. Many small contractors never recovered. “We saw a number of companies, especially small businesses, that just didn’t make it,” he says. “Cash flow was negatively impacted, and they couldn’t survive.”
The damage, however, extends beyond the companies themselves. When small businesses close, the government loses innovation, expertise, and competition — key ingredients in efficient contracting and national progress. “It’s not just about the contractors or the federal employees,” James stresses. “It’s about the American people, who don’t get the benefit of the government up and running that they’re entitled to.”
He also highlights the broader economic toll of a shutdown. During the 2019 lapse, the Congressional Budget Office estimated a permanent loss of $3 billion to the U.S. GDP — money that never returns to the economy, even after the government reopens. That same pattern, he warns, could easily repeat if this shutdown drags on.
How Companies Are Coping
James shares how the Professional Services Council is helping members navigate the crisis. The organization holds daily meetings and briefings with its member companies, offering guidance and checklists to help them stay ready for a rapid restart when funding resumes.
“We’re telling them to stay in touch with their contracting officers, get the latest information, and document everything,” he says. But in some cases, even that’s difficult — because many contracting officers themselves have been furloughed.
Without those government points of contact, contractors are often left guessing about their project status or payment timelines. “It’s worrisome,” James admits. “In some departments and agencies, the contracting officers have been sent home.”
Still, preparation is key. He urges companies to keep detailed notes, track deliverables, and maintain readiness to “go to work the day the government comes back.” The goal, he says, is to minimize lost time and get critical projects back on track immediately once appropriations return.
Pressure Mounts in Washington
Francis asks what contractors are asking most frequently. “The question we get the most,” James says, “is the same one you’re asking me — when will the government reopen?”
Unfortunately, there’s no clear answer. But James and his team are working hard to make sure policymakers understand the human and economic costs of inaction. “We’re meeting with the White House and explaining the overall impact to the economy,” he says.
He reminds listeners that this isn’t just about lost wages — it’s about the innovation and mission delivery that stall when contractors can’t work. “Our member companies provide innovative solutions every single day,” he says. “They’re in artificial intelligence, financial tech, cybersecurity, healthcare — you name it.” Contractors, he adds, play critical roles in essential operations, including delivering Social Security checks, supporting defense systems, and maintaining federal IT infrastructure.
A Call for Fairness and Recognition
James argues that the time has come for Congress to consider contractor back pay legislation, similar to the protections federal employees already enjoy. “Our employees, just like the federal government employees, are innocent bystanders in a political fight,” he says. “They want to work.”
He stresses that contractors aren’t taking sides in partisan debates — they simply want to do their jobs and support their government customers. “Don’t penalize the people who need it the most,” he says. “They’re worried about food on the table.”
James’s message is clear: federal contractors are not outsiders to government. They are partners, collaborators, and problem solvers who help federal missions succeed every day. As he puts it, “We’re an integral part of the government. We’re proud to partner with federal employees, and we’re entitled to those same benefits.”
Even amid uncertainty, James remains focused on readiness and resilience. He advises contractors to stay organized, communicate with teams, and prepare to restart operations at a moment’s notice. “Keep your federal ID handy,” he says, “because, God willing, you’re going to walk back into that building pretty soon.”