How We Learned to Love Government Contracts Law
“Only when the tide goes out do you discover who's been swimming naked.”
― Warren Buffett
As we write this blog from our home offices, one of us is just about to graduate from George Washington University Law School and is beginning his career as a lawyer. The other author has been practicing the law for almost 37 years. Yet the world in that time has come to a similar place by a different route.
Today, as Kirby Rousseau starts his legal career, with interest rates of near zero, and the economy collapsing as a result of the coronavirus pandemic, many are losing their jobs. Unemployment has more than tripled, by some estimated reports 18%, and the federal government is sending out stimulus checks to income eligible U.S. taxpayers. It is not the greatest moment to graduate from school. Many law firms are not hiring. Some job offers are likely to be deferred. Some firms are cutting compensation. Furthermore, many of the job offers are contingent upon a successful taking of the state Bar, an exam that is traditionally held every February and July. With several states already postponing their July exams, law students are concerned about their prospective employer’s ability to keep them on. While many first-year associates at law firms do not independently interact with clients, a licensed associate can claim to practice law and charge a big law hourly rate. Furthermore, graduates who are working in nonprofit sectors may work directly with low income clients and the Bar exam is necessary to ensure that they are qualified to interact and represent these clients. As courts have been shut down the entire legal process has slowed to a grinding halt. Litigation practice, transactions, drafting settlements, negotiating claims, and filing motions are the life blood of most law firms. However, some legal practices are insulated from these dangers. Government contracts may be one of those rare birds. Kirby Rousseau comes to work as an associate at AWR after working as our law clerk. His associate position thus is born out of the supposed stability of a government contracts practice.
And, 37 years ago, as Dan Abrahams started his legal career, the country also was crawling out of a recession induced by more than 11% unemployment, as the Federal Reserve squeezed interest rates higher to choke off the inflationary monster. That too was not the best time to emerge from law school into the job market. Dan Abrahams accepted his first job with his mentor, Gil Ginsburg, in 1982, because that was one of two jobs that he was offered out law school -- the other being a contracts lawyer for the U.S. Postal Service. You work where the opportunities are presented. Or otherwise said, you dance with the one who brought you to the dance. It is not quite a full circle between 1982 and 2020, since while history rhymes, it never repeats exactly. But the two eras are contemporary bookends of high unemployment, exceeded only by the events of the Great Depression of the 1930’s.
This leads us to the topic of this day’s blog – why we learned to love government contracting and to practice law in that field. The basic reason is that one of the perks to working in government contracts is the sector’s resiliency in recession situations. The reason we are both government contracts lawyers is a happenchance of those current and long ago events. That was where the legal jobs were still found. That is the job offers we got in a challenging job market.
The United States Government tends to adopt fiscal policies that are countercyclical which means they try to lessen the booms and busts of the market to avoid major fluctuations. In recent years, this might take the form of the Federal Reserve decreasing interest rates to prop up the economy. Before this most recent presidential administration, the Federal Reserve would likely raise interest rates in response to an economic boom. This countercyclical fiscal policy means that the Federal government will spend money during a crisis, such as the one we are in, to prop up the economy. This directly benefits government contractors because they are already in position with the infrastructure and labor to act on the contracts the government solicits. This extends beyond ordinary procurement since in bad times the government traditionally ups the ante on spending money on roads, subway systems, environmental cleanup and more. The Government, indeed, under conventional Keynesian economics, will spend more money in bad times, particularly on public works, and that will bolster the bottom line of the affected contractors. Don’t believe us? Check out https://beta.sam.gov/ for all of the contracting opportunities. The Government spends over half of a trillion dollars on goods and services every year. In 2018, 35% of that money went to civilian agencies. https://blog.gao.gov/2019/05/28/federal-government-contracting-for-fiscal-year-2018-infographic/.
Another benefit to working with the Federal Government is the lack of credit risk. The Full Faith and Credit Clause of the U.S. Constitution guarantees that each contract solicited by a federal agency is respected by the Federal Government. There is almost no credit risk. The Federal Government owns the currency printing press. They can always print more money. So, government contractors will get paid and they do not have to worry about their major customer going bankrupt. Of course, the future payment may come by inflated dollars, and its value may be impaired, but the nonpayment risk due to business failures is not a real concern for government prime contractors. Payment will come within 30 days of which it is due, or it will automatically earn interest under the Prompt Payment Rule.
Additionally, when many workers are required to stay home because they are non-essential, contractors with cost reimbursement contracts or certain contract provisions may even be able to pay their workers while the government foots the bill. And, in its service contract laws, the U.S. Government encourages unionization and worker protection, so even the contractor’s workers may be insulated from the worsts of the recession. In other words, it is good to be a Federal Government contractor in times of recession, or in times of social disruption. The work is steady, reliable and an anchor in uncertain times. It is not that government contracts work is risk free. The Government can be a capricious customer, and contractors can fail. It just that they are less likely to do so than private sector businesses.
And no surprise, it is good to be a government contracts lawyer in those same uncertain times. the same stability trickles down to the legal profession. Of course, government contracts lawyers are impacted by the same winds that buffet the rest of the legal profession, albeit the gale is less turbulent. Their clients are more likely to be fiscally sound. They are more likely to pay their bills. And they are more likely to pay on time. They are less likely to cut back on the demand for outside legal services. The government contracts legal profession, like bankruptcy and few other practices, is counter cyclical. In good time it plugs along, unglamorously, and is given little credit. In bad times, law firms think of it as a safe harbor.
And so that is how we became government contracts lawyers. We both found a place sheltered from the storm, albeit 37 years apart. While Kirby Rousseau has yet to write his full history, Dan Abrahams never looked back after joining the bar. He kept working away, glad to be a government contracts lawyer. Out of the chaos and pain of bad times, there can emerge good things. Hopefully as the tide goes out, we have our bathing suits securely fastened.