Small business contractors are reporting cash flow and other financial issues in a new survey to explore the impacts of COVID-19 amid steps by their largest customer and industry partners to try and mitigate negative effects.
Cash flow is king for government contractors that have historically steady and reliable bill payers in federal agencies, but even those companies are reporting financial stress of varying degrees during the coronavirus pandemic.
That pressure on balance sheets appears to especially hold true for small businesses, according to a National Defense Industry Association survey released Thursday. Sixty-percent of the nearly 770 small defense contractors polled reported cash flow and financial disruptions related to the COVID-19 crisis and roughly the same share of respondents see those lasting for the long term.
Forty-eight percent have altered their revenue expectations for the year and 29 percent said they are having significant issues with access to capital, the latter of which points to the widely-reported freezing of lending and credit markets.
Cash flow and revenue recognition problems all point to these factors cited by NDA: cuts to billable hours (likely when on-site staff numbers are reduced), delayed payments from prime contractors and agencies (likely on hiccups in processing invoices), lack of remote work or schedule flexibility in contracts, and shelter-in-place orders that prevent employees from getting to work (likely if they are deemed non-essential).
Issues across the supply chain were the backdrop for DOD acquisition lead Ellen Lord’s word of caution Monday that program delays of up to three months are a real possibility.
Of the 752 companies that identified their main line of work, 39 percent cited themselves as predominantly focused on services and 24 percent in technology research, development, testing and evaluation. Companies in those two groups reported more disturbances from the situation than firms tilted toward manufacturing, for instance, and likely because of the lower billable hours and site access issues.
Efforts are underway by DOD and its largest industry partners to help small businesses. DOD has increased progress payments for contractors and undertaken accelerated payment initiatives, the latter of which Lockheed Martin has kicked off as well for those in its supply chain. Lockheed said Friday it has made $256 million in payments as of this week, or nearly half of what it has set aside so far.
So too is L3Harris Technologies. In a release Thursday, L3Harris said it began this week a batch of $100 million accelerated payments to small businesses in the former’s global supply chain.
DOD and other federal agencies also have a section of the economic stimulus legislation to assist contractors – more specifically Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act. That section gives DOD and other federal agencies to reimburse contractors for paid leave and keep their workforces in a ready state if employees cannot get to facilities or work remotely because of the pandemic.
NDIA conducted the survey at the request of the Defense Department’s office of acquisition and sustainment to get a glimpse at what small business contractors are observing and feeling. The survey closed April 10, one day before DOD issued guidance on CARES Act provisions to industry.
The trade group plans to conduct a follow-on survey in the coming months to re-assess the state of play for small businesses given the crisis’ ever-changing nature. NDIA’s recommendations from this survey include expedited testing for essential staff, an accelerated security clearance process and increases to DOD network bandwidth.
To account for disruptions, NDIA also said performance flexibility and accelerated payments would be the most helpful steps to aid small businesses. Excusing performance delays would help in the event of bandwidth issues for those working remotely, according to NDIA.
As part of its coronavirus response support, L3Harris also said it will contribute $2 million and give equipment and resources to organizations involved in relief and recovery efforts. The company will also provide a two-times match to employee-designated gifts for those efforts.
L3Harris is donating protective equipment and making grants to eligible employees who have been impacted by COVID-19, while company engineers and scientists are assembling respirators and medical grade components for those face coverings.