Small businesses carrying weight of shutdown on their payrolls

Wednesday - 10/16/2013, 4:16am EDT

Jason Miller reports.

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The Technology Resource Center of America sent a crew 600 miles to Panama City, Fla., on Oct. 1 to work on a telecommunications project on a military base. After being assured they were to show up whether there was a government shutdown or not, TRCA's crew was turned away at the gate.

Integrity Management Consulting heard the same assurances from two of its customers — there was funding for their project even if the government shuts down.

But when two teams of employees showed up at their federal worksites on the first day of October, they too were told to go home.

Integrity and TRCA are just two examples of dozens and dozens of small firms frustrated by the uncertainty and inconsistency from the government. And they are increasingly worried about the future of their business, especially if the government shut down continues into a fourth or fifth week, or even longer.

Federal contractors haven't gotten paid by the government in two weeks. And even if the government shutdown ends this week, they still may have to wait another month to see any income.

This sudden standstill of the federal cash flow means many federal contractors, especially small ones, are teetering on edge of collapse.

"I basically have to pay that crew [in Florida] regardless of whether they do that work or not," said John Hunnicutt, the director of federal sales for TRCA, which is located in Dallas. "We have instances like NASA on the West Coast where I have a guy sitting out there and I honestly don't know if I'm going to get paid or not. We continue to pay his payroll, fairly sizable for small company. But I don't have any clue what's going on in the government. It definitely has us on pins and needles."

Credit remains tight

TRCA is like many small firms. It relies on banks to float it credit while waiting for the government to pay its bills. Banks know the government is good for the money so the credit line is considered low risk.

But many small firms are finding it more difficult to get a line of credit that is necessary for several weeks of payroll as banks have not returned to the lending levels as before the 2008 banking crisis.

Therefore when the shutdown hit, small businesses were forced to use cash reserves to meet payroll.

And that can only last so long.

"One of our greatest fears at this point obviously is cash flow. I think that's any business of our size. I think that's any business period," said Kim Hayes, the CEO of the Ambit Group, a service-disabled veteran owned small business. "As hopefully we see an end to the shutdown, it's not even the impact today, tomorrow or two weeks from now, it's the impact 45 days from now, 60 days from now when payments are not being received or there are delays in the payments. That's not criticism, just a statement of facts. It's a little frightening."

Contractors are holding out some hope to recover some of the money lost during the shutdown-the silver lining in all of this shutdown frustration.

Some vendors may be able to bill the government for the costs of a stop work order under the shutdown.

"The costs of stop work orders are generally allowable, but not necessarily," said Rob Burton, a former deputy administrator in the Office of Federal Procurement Policy and now is a partner with the law firm Venable in Washington. "They may not be allowable, for example, under an indefinite delivery, indefinite quantity contract where the government has already purchased the minimum quantity required under that arrangement, or under a requirements contract where the failure of the requirements to materialize is a risk the contractor accepted when it entered into the arrangement. Then, last but not least, the contractor has to be able to prove damages. And that can be very difficult to do. You have to show you were damaged by the stop work order, and that is not always the case. Contractors have a hard to proving damages."

Some contracts include allowable costs

Burton said those costs that are allowable usually fall under firm fixed price and cost-plus type contracts that aren't under an IDIQ vehicle.

"You have to have good documentation showing any type of monetary impact on your company," he said. "You have to show exactly what kind of costs was incurred. They will be looking at actual costs and actual damage to the company."