Shutdown Screws Small GovCons

Written By: BOOST, LLC

I normally never write about politics, recognizing that half of my network leans one way, while the other half leans the other.  I tend to live by the “no politics or religion” in public domain, school of thought.  But this latest shutdown has me completely livid over its stupidity and its potential impact on the small GovCon world.

While government employees will enjoy a day or two at home and will eventually receive their backpay for doing absolutely nothing (to be fair, through no fault of their own), small govt contractors will not fare as well.  Those deemed non-essential will generally be forced to use their PTO to stay at home while the work piles up.  Given the last-minute call, few companies have their act together enough to deliver all day training sessions for their employees today to use their overhead dollars wisely.  Outside of PTO, it’s leave without pay (LWOP) as generally, we can’t put your expense on overhead, driving our multiplier up and our competitiveness down.

While a day or two (which hopefully all this is) won’t kill any company, the more it lingers, and the more uncertainty, the less willing smaller companies will invest, hire employees or make decisions.  The indecision of the government funding grinds most smaller companies to a halt.  Small business does not have the cash reserves that the billion-dollar club has.  They are subjected to pay-when-paid terms as subs, and there’s no one in the government paying contractors, so cash dries up.  Back in 2013, the impact of 16 days of shutdown wiped out net income for the year.  If you were living month to month on 4% profits, just one pay period worth of not billing was devastating.

Enter January, when PTO balances are reset, and lower due to the holidays.  Credit card bills from the holidays are due this month.  New hires have just started with the new year with zero PTO built up.

The talking heads blame each other and throw out the military and payment but to be honest, they will be fine.  They will receive their paychecks.  As will the hundreds of thousands of government officials who stayed home today.  They will come back to more backlog (thank you for all the hiring freezes).  RFP releases, contract awards, and payments will all be postponed, directly impacting contractors.

Large GovCons will weather the storm, utilizing their cash reserves, blaming the shutdown for poor earnings reports and postponed contract execution.
Small GovCon, you will be screwed should this last any length of time.

And don’t even get me started on passing another CR.