Government Shutdown: Small Contractors to Suffer

WASHINGTON ( TheStreet) - Todd Flemming, President & CEO of Infrasafe and a member of the Small Business & Entrepreneurship Council, is one of many small federal contractors who worries how a government shutdown could affect his business.

About 90% of the work done by the nine-year-old company, through its Advantor Systems Corp. subsidiary, which provides electronic security products and services, is for government work, primarily for the U.S. Department of Defense.
Small firm government contractors will likely suffer if the shutdown occurs.

Flemming worries how long it would take the government to pay the company for work already done if it came down to a standstill on the budget.

"It's very unlikely that we would get paid on a timely basis," he says. "That's obviously a problem with respect to cash flow. On top of that we're still expected to report to the bases to perform those services -- which we'll do, of course -- and pay our employees."

Republicans and Democrats are in a heated battle over spending and have until 12 a.m. Saturday to agree to a budget. Congress is basically at a standstill right now over certain issues such as environmental issues. If they cannot agree the U.S. government would effectively shut down, with the exception of critical functions, until a budget is set. According to media reports on Thursday the House of Representatives passed a stopgap measure to push the shutdown back a week as well as additional spending cuts.

The last government shutdown was approximately 15 years ago.

The National Small Business Administration says SBA loan applications would be put on hold, and SBA assistance programs would not be available, according to Molly Brogan, the NSBA's vice president of public affairs.

Money could also be held up for any federal research and development projects, and tax assistance unavailable.

"With April 18 nearing, that could be an issue for the millions of pass-through entities in the U.S.," Brogan writes in an email.

>>Government Shutdown Could Derail Recovery

According to the Small Business Administration, about 2% of all small businesses (3% of employer businesses), or roughly 500 million, have sales of 10% or more with the federal government.

Which means other small government contractors are likely facing a similar scenario as Infrasafe.

"If the shutdown happens, obviously we have no cash flow for those of us who are relying on government contracts because we're not going to get paid for work," says Gloria Larkin, President of TargetGov, a consulting firm that helps small companies win government contracts. "We have overhead costs that will continue. We have to pay people and we can't afford to do that so what we are going to do is lay them off."

But for those companies that do rely on government work, "small businesses still will be negatively affected," regardless Larkin says. "The government still has 72% of its fiscal budget to spend in less than five months. That means once the standstill is over they are going to do larger contracts. They can't possibly give small businesses small contracts. They're going to bundle them together."

"Of the $360 billion that is left to be spent, 23% is supposed to go to small businesses -- that's $82 billion," Larkin says. "The question is will that be a windfall or an additional crisis that just buries small businesses because they don't have an opportunity to compete effectively?"

Flemming has another concern if the government, indeed, were to shut down.

It's possible that government point-of-contacts at various job sites may not be there, which could get confusing if there are multiple replacements or, worse, no one available to allow Infrasafe workers to be able to continue with installation and maintenance of security systems, he says.

That would lead to more work done by Infrasafe to determine where workers are allowed and where they are not, he says. Infrasafe employs 170 workers, who get paid a combination of salary, contractor and hourly wages.

Flemming says the company could handle a 30-day, even 60-day, government shutdown.

"We've thought through in case of a 30-day shutdown," Flemming says. "It's going to be sort of business as usual with the exception of a change in our cash projections to anticipate a reduced collection, but we won't be in any danger of not paying anyone on that timeframe."

Beyond that "we'll have to give some real thought as to how we deal with it," he says.

-- Written by Laurie Kulikoswki in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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