Government shutdown threatens small businesses

Reliance on contracts, fewer reserves put firms at risk

A potential government shutdown has been delayed until mid-March, but that doesn’t mean that government contractors -- particularly small businesses -- have stopped preparing for the possibility that their biggest customer will close up shop.

While most government contractors will be affected in some way by a government shutdown, it’s thought that small businesses will feel the greatest impact because many rely on the government for all of their annual revenue and have less cash flow and fewer resources.

Several small-business contractors that generate the majority of their revenue from government work are coming up with plans for how to deal with the potential loss of revenue, as well as what to do with scores of employees who can’t do the work they were hired for.

“How do we recover the loss of revenue?” asked Tony Jimenez, president and CEO of MicroTech, a company based in Vienna, Va., that generates 80 percent of its revenue from government contracts. “It’s a constant situation of Democrats and Republicans trying to teach each other a lesson, and government contractors are suffering.”

Small businesses have little to go on in terms of knowing whether and for how long the government will stop working. But they do know that nonessential contracts will stop and the work they do that requires supervision by a government employee will also stop if that government employee has been furloughed.

Ideally, many say they’d like to keep employees on the payroll but can’t do it if the funds aren’t there. So, do the contractor’s employees get furloughed? Are they forced to take their paid vacation time? Are there other projects for them to work on? 

One of the biggest fears small businesses face is that good employees, forced to take vacations or get furloughed, might decide to leave.

“If we lose employees, then it’s very hard to bring them back and go through the security clearance process again,” said Jay Challa, chairman and CEO of Ace Info Solutions Inc., based in Reston, Va. 

Challa said his firm, which has about 20 government projects active right now, will consider letting employees continue working at government sites that don’t require a government supervisor.

Another option is to allow the employees to take on nongovernment work, such as research projects and proposal writing. Challa said the company will also use the time to make sure employees are caught up on certifications. These measures will allow employees to still be paid and not have to use up any vacation time.

“We will have to use overhead dollars for those tasks,” Challa said. “But we just have to make sure we give the employees enough opportunities to continue.”

If employees aren’t able to work on other company projects, they will be asked to take paid time off, Challa said.

List Innovative Solutions, an IT provider to the federal government based in Herndon, Va., gets all of its revenue from government contracts. So the small firm is seeking legal advice to better understand the human resources laws and how it can deal with its hourly and salaried employees.

The company’s preference is for employees to take their paid vacation time rather than leave without pay. But a furlough is not completely out of the question for List and other small businesses.

“A small business can’t carry a whole lot of it," said Katie Sleep, president and CEO of List. "We’re trying to keep going and trying not to go into panic mode because it could be in vain. I hope they can work it out to get us through the budget year.”

Aronson LLC, an accounting and consulting firm in Rockville, Md., says the impending government shutdown has been one of its most active blog topics on the firm’s website. Aronson has also been busy consulting with clients on how to handle a government shutdown.

“Treat it as a project,” said Thomas Marcinko, principal consultant with Aronson. “Assign somebody to be in charge or responsible for preparing your firm for a shutdown.”

His other advice includes looking at each contract and evaluating how each one will be affected, as well as telling small businesses to alert their banks about late payments from their clients, document any costs related to the shutdown and communicate with all the people who are affected, including suppliers.

“The shutdown is very complicated and impacts different contracts differently,” Marcinko said. “Handling it well will help a great deal. Not handling it well is close to fatal.”

Reader Comments

Thu, Mar 10, 2011

If the Government move forward with a shutdown, will the contractors be able to use the GFE Laptops and Blackberry during the shutdown period or will there will be a hefty fine is GFE is used during the shutdown period?

Wed, Mar 9, 2011 Contractor

If you think this will destroy small busnisness, take at look at what is already happenning in the office supply industry with small businesses. They are dropping like flies because of the recent awarded FSSI BPA for Office Supplies. Where is the article on that??Do some research on it..does it sound fair to you?

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