Friday, July 29, 2011

PSC Discusses Debt Threat


With the debt limit breach just a few short days way, Smart Contractors are sure to be asking “What is going to happen to my contract and my business if Congress doesn’t reach an agreement and the administration can’t raise the debt ceiling?”
 
Since the U.S. government has never defaulted on a debt before, it is difficult to say with any certainty what will transpire. It’s not even clear that failure to raise the debt ceiling will result in a default, but there are some key points you should understand about operating when the government cannot borrow money:
 
 
  • Work can continue, but payments may be delayed because, unlike a shutdown, the problem with failure to raise the debt ceiling is not availability of funds, but cash flow. 
  • After the debt and entitlements are paid, the White House will decide what bills will be paid first from the balance of available funds (aka collected tax revenues).
  • The Prompt Payment Act is in effect and companies can collect interest on late payments.
  • Federal employees may be furloughed, which could affect the ability to continue work.
  • New contracts can be made and funds can be obligated because appropriations have been passed.
  • Attempt to collect payments due in July and August now before the debt ceiling is reached and payments are delayed.
  • Subcontractor payments and other expenses owed as a result of government work are still valid and must be paid according to the terms of the subcontract to avoid debt problems of your own.
PSC President Stan Soloway and Executive Vice President Alan Chvotkin offered these and other insights into how the government’s failure to raise the debt ceiling could affect the government contracting industry during a conference call with PSC members on July 18. They’ve spoken with numerous reporters about the topic:
Posted by Professional Services Council at 3:21 PM
Labels: , , , , ,