Government Shutdown: Defense Industry Feels Impact

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Imagine if all 400,000 employees at United Parcel Service, the nation's fourth-largest private employer, were all placed on furlough with no clear answer on when they'd be called back to work. That's the number of Department of Defense workers -- roughly half of DOD's 800,000 civilian employees -- that have been temporarily suspended from their duties as a result of Congress' inability to reach a resolution for funding the U.S. government.

While the civilian employee furloughs are not expected to immediately affect day-to-day warfighting operations, they nevertheless present another set of challenges for Defense Department officials who are already struggling to consolidate operations and cut an additional $43 billion in sequester-related expenses this year. That's to say nothing of the work that must be shouldered by those civilians who will remain on the job, without pay, managing DOD's massive financial, IT and business support operations.

The biggest impact, at least in the short term, will be a delay in new contracts, said Andrew Koch, senior VP for defense and homeland security with Scribe Strategies and Advisors, a Washington D.C.-based strategic consulting firm. This could also include some items slated for troops in Afghanistan, including new technologies and replacement equipment. "But not bullets or fuel," he said.

But should the shutdown last for more than a few weeks, DOD sources say, it will impact a number of support functions, including the deployment of new technologies to forces in Afghanistan and the construction and maintenance schedules for Navy ships. While the Defense Department staff reductions are not as extreme as for many other government agencies, they may cause many non-vital back-office and support operations to shut down or run at decreased efficiency, Koch said.

[ Learn more about how many employees are affected by furloughs. See Government Shutdown Hits Most Agencies. ]

Defense industry suppliers are already bracing for work to come to a standstill, and the prospect that, even if Congress enacts new appropriations, it could be weeks before suppliers and supply chains are able to return to normal operations.

Hardware manufacturers with existing contracts are safe for the time being, as they are locked in. But firms providing services at DOD facilities have already been hit and are getting no funds from the government until facilities reopen, Koch said. The overall impact will depend on how long the shutdown lasts. "Service companies will probably feel it immediately," he said.

The shutdown, for instance, has closed the Portsmouth and Norfolk Navy yards. The furloughs of thousands of civilian shipyard workers has stopped production of new ships and ongoing maintenance of vessels already in port, which will delay their return to the fleet whenever funding is resumed over the coming days or weeks, Koch observed.

Defense contractor Lockheed Martin released a statement noting the firm's disappointment that a shutdown could not be averted, but said firm will continue to work its government contracts. "Unless we are directed otherwise by our customers, our facilities will remain open, and our employees will continue to receive their pay and benefits. We will monitor the situation and provide regular communications to our employees throughout this process," company officials said in a statement.

Although uniformed military are exempt from furloughs, they will be still affected by the reduction in civilian service staff. In many cases, military personnel will either have to go without certain back-office services and non-essential IT capabilities or fill in for the missing civilian staff, Koch said.

While the Office of the Secretary of Defense has issued directives keeping active-duty personnel and essential, or "excepted" civilian staff working, they will do so without pay. With the cut in funds, non-essential activities will be shut down "in an orderly and deliberate fashion," the OSD memorandum said. This includes stopping activities such as temporary duty travel.

In the DOD contingency orders written up for the shutdown, military personnel may have to fill in for some of the furloughed civilian jobs. In a Sept. 26 memorandum, deputy assistant secretary of Defense Ashton Carter noted that active-duty personnel would remain working. Civilian personnel would be furloughed, but it is up to commanders and department heads to determine which staff would remain to continue essential functions.