D.C. Agencies Prepare for the Worst as Government Shutdown Continues

Shops Aren't Taking Direct Hits -- Yet

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For once, Washington public-relations executives and communications employees have a legitimate excuse to be missing in action during a crisis. Those who work for the government or count it among their clients could be hit with hefty fines if found working during the current shutdown.

But if a couple days off stretches into next week and beyond, PR execs say, they may have their own financial crisis on their hands.

The shutdown -- the product of budget disagreements in Congress -- has furloughed government employees deemed nonessential. The communications department at the IRS apparently fits the bill, judging by this email sent earlier in the week:

"Due to the lapse in appropriations, IRS operations are limited and the IRS Media Relations office will be closed during the shutdown. Please be advised that by law, we are unable to conduct normal daily operations during this time. Therefore, we are unable to respond to your media requests during the shutdown. We apologize for this inconvenience. For urgent matters, you may leave a phone message at 202-622-4000. We will respond as soon as we are able to resume normal operations. Thank you."

And while outside PR and ad agencies aren't required to shut their doors, those serving government clients are scrambling to repurpose staff as uncertainty surrounding the length of the shutdown tests their morale and financial resilience.

"As both a citizen and business leader, I hope Congress finds its responsible self," said Robert Mathias, CEO of Ogilvy PR North America. "It's not good for our business or for the American people. When you stop work on a portion of your business, it causes any number of staffing issues from redeployment and beyond. We are in a good place now because our business is strong and we have been able to redeploy staff in the short-to-medium-term."

Big spender
If the shutdown lasts much longer than a week, however, most agencies with government clients will begin to feel the pain as the government tends to be a big spender.

The U.S. Government, which is number 50 in the Ad Age DataCenter's 100 Leading National Advertisers ranking, spent $826.8 million on total advertising and promotions in 2012, according to the DataCenter. The U.S. Postal Service -- which actually won't lose funding during the shutdown -- is the largest spending brand in that entity, followed by Marine Corp., Army, Navy, HHS, Drive Sober, National Highway Traffic Safety Administration, Amtrak, Air Force, CDC, Independent Foreclosure Review and Job Corps.

"We are not experiencing any immediate fee impact," said Edelman's Washington D.C. President Rob Rehg. "However, the longer the shutdown continues we will start temporarily losing fees, beginning next week. Some of our government contract work will continue at full speed and full funding, including our work for [Centers for Medicare & Medicaid Services] to help get people enrolled in the new healthcare exchanges. Other government contracts will be put on pause until the government is operating fully again."

The good news, he added, is that the disruption will have no impact on the shop's people. "The work and the fees that are delayed as the shutdown continues will pick up in full once we return to normal, so over the course of the year we won't be losing any fees. We'll just experience a delay in work and compensation for the duration of the shutdown. We have plenty of work to do for non-government clients."

Like Mr. Rehg, Dave Rinaldo, chief operating officer of small digital shop Rock Creek Strategic Marketing, has been able to repurpose staff to non-government clients for the short-term. If the shutdown goes beyond a week, "I start having more increased anxiety," he said.

The 75-person shop supports digital marketing for a number of large government agencies such as FEMA, the Federal Trade Commission and the U.S. Department of Agriculture, among others.

Some work continues
On the operational side, the agency is able to continue work on some government business. "We'd work up to where we hit client-approval requirement checkpoints," he said. "Obviously if our clients aren't working they can't approve anything."

The potential for a government default is more concerning to Mr. Rinaldo. "We have well-managed financial numbers," he said. "At some point, if the government is unable to process our invoices, that will be a hindrance to any government contractors' cash flow."

The effects go beyond financial, D.C. agency executives agreed.

"We can quickly regain lost ground from a programmatic standpoint, but if it goes much beyond [a two-week stoppage] we begin to have skill decay or team attrition," said a D.C. agency executive who wished to remain anonymous.

And silence on social-media feeds and a halt in marketing activity don't bode well for the health of the government brands. "Some events or some of our projects are about moments in time so the calendar keeps looming," said the executive. The shutdown will mostly affect "outward-facing programs where we're trying to drive consumer sentiment. Just because the government is closed doesn't mean the rest of the world has stopped."

Agencies are getting used to the collateral damage -- first from sequestration, which recently threatened marketing budgets for a number of government clients and their agencies, and now the shutdown. But despite the blow, they still think that serving government clients is a viable business model.

"We've always had a diversification strategy," said Mr. Rinaldo. "We have gone through recession, been here in good and bad times and it's not much more unpredictable than the private sector business. When the recession hit they were hit as well. It's part of the standard.

"Our point of view is that the government is a good client," said the executive who wished to remain anonymous. "It enables us to do some important work our teams feel good about and make contributions to the national agenda, which is significant. We also continue to see it as good for business. While the shutdown is pathetic on many levels, isn't deterring us from the government market."

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