If policymakers fail to reach a deal to stop the cuts in defense and domestic spending, small firms fear they will be the hardest hit. Economists and industry experts agree. Although federal contractors of all sizes could take an enormous blow, smaller businesses are at a disadvantage because they lack larger firms’ capacity to respond.
Big firms in the Washington region have already begun preparing for the spending cuts in ways unavailable to smaller companies. Some giants are moving workers, divesting some of their businesses and taking work back from subcontractors. Smaller firms, though, say they are doing little, mostly because there is little they can do.
“We’re hoarding cash,” said Brad Schwartz, president and chief executive of Blue Canopy Group, a Reston-based contractor that specializes in cybersecurity and intelligence.
“We’re as well-positioned as any small company, but we’re still anticipating major setbacks,” he said.
Maria Proestou, head of Delta Resources, an Alexandria-based defense contractor with about 280 employees, said she’s never seen the business so cutthroat. “Larger companies are fighting for work they never would have fought for before,” she said.
Proestou said she didn’t appreciate how nervous many large contractors were until last month, when one that employs her company as a subcontractor told her that it was taking the business back.
“I have to find new work for 10 people by Christmas,” Proestou said, adding that she has already laid off a few employees and downsized through attrition. She has also moved workers into less-expensive office space.
The heads of some small contracting firms said they would not be able to stay afloat for more than a few months if the spending cuts happen.
At a recent meeting in Fairfax County, a representative from the contracting giant SAIC said his company is among those taking work back from some subcontractors.
“You know what that’s called, don’t you?” County Supervisor Pat Herrity (R-Springfield), who is chief financial officer of a Reston-based federal contractor, said after the meeting. “It’s called ‘killing small business.’ ”
A spokesman for SAIC did not respond to subsequent requests for comment.
Tom Dority, president and chief executive of Tech-Marine Business, a Navy contractor with about 85 employees, said the problem is twofold: Not only do smaller businesses lack options for softening the blow, they also have little room to absorb losses. “The smaller the company, the smaller the margin for error,” he said.
Dority and others described government contracts slowing to a trickle well ahead of the year-end deadline because federal agencies are unsure how much money they will have — a phenomenon that’s been dubbed “soft sequestration.”