Long-term fears weigh on shutdown-weary contractors

As I made the rounds at Bob Lohfeld’s annual happy new fiscal year party last night, there was one topic on everyone’s mind – the government shutdown.

A wide range of reactions were on display: resignation, humor and anger to name a few.

But frustration and fear were probably the predominant emotions.

One thing is for sure, no one can predict what’s going to happen next.

As one veteran of Capitol Hill and industry told me: “I’ve seen the dance around a shutdown before, so I really didn’t think it would happen.”

But it’s happened, and now we are getting ready to start week three. There has been some movement on the debt ceiling, but it looks like we are still days, if not more, away from any progress on a continuing resolution.

As the shutdown enters week three, contractors are girding themselves for the real pain to hit.

Most workers on paid-time-off are running out of that benefit, so they’ll now be converting to leave without pay.

As payments from the government slow down or dry up, companies are burning through cash as they try to help employees and meet other obligations.

But from my conversations last night, attention is also turning to the long-term effects of the shutdown.

I don’t know the answers, but this is what people are worrying about, particularly small and midsize companies, who are really feeling the squeeze.

Employee retention

How many skilled and valuable workers are going to jump from small to large contractors, or even worse, leave the government market completely due to frustration and fears of instability?

Prime-sub relationships

Some executives with small businesses said that they are seeing large primes bring formerly subcontracted work in-house, so that they can hang onto their own workers. After the shutdown, will any of that work flow back to subs?

Financial turmoil

If the shutdown goes into a fourth or fifth week, many small businesses will not survive. Some may have already reached the breaking point. Will we see more formal bankruptcy filings, or just fire sales of small businesses that will have no choice but to cash out? Will banks have any flexibility or patience with small government contractors?

Worst. Year. Ever?

2013 was pretty bad with a delayed budget and sequestration. New starts were practically non-existent, and fewer solicitations were released. But will 2014 be worse? The potential is there because this shutdown fight is just about a continuing resolution. How will they settle the budget for an entire year?

It will take months for the answers to these questions to become known, but it doesn't take a crystal ball to predict that the longer the shutdown continues, the worse the answers will be.