Shutdown Hitting Small Firms Hard, but There are Survival Strategies

Businessman putting a card with text How to survive in the pocket

Image: Michail_Petrov-96/iStock

Key Takeaways for Executives:
  • The government shutdown is taking a particular toll on small contractors.
  • Contractors need to do several things to survive, including checking contract payment terms, updating proposals as required and completing SBA paperwork.
  • If possible, contractors also should retask employees on overhead projects and require them to take paid leave.

Small contractors trying to weather the shutdown need to familiarize themselves with the payment terms of their existing contracts, see if proposals need to be updated with personnel changes, and work on any outstanding paperwork for Small Business Administration loans or certification programs, Holland & Knight attorney Mitchell Bashur told WashingtonExec.

As Bashur and his colleague Amy Fuentes explained in a blog, the shutdown is affecting contractors — especially small businesses — in several important ways.

Federally guaranteed SBA loans can’t be distributed. Although loan documents can be prepared by banks and borrowers, there’s no one at SBA to review them and distribute the loans. That’s a huge problem for small businesses that lack large cash reserves to see them through, especially given no one knows when the shutdown will end. is down. This website is used for most small business contracting programs, such as applying for and maintaining certifications in 8(a) and other socioeconomic programs. Not only are most activities on the site not operating, but the shutdown is lengthening preexisting backlogs in many of these programs. That will affect contractors’ ability to compete for solicitations requiring particular certifications after the government reopens.

Although SBA says it will “grant extensions for deadlines affected by the shutdown,” it is uncertain whether any deadlines will be extended for companies that do not obtain certification approval before a solicitation deadline, especially for agencies still operating.

Payments to small businesses from the federal government might be delayed. This is true for all contractors, but small contractors typically have less of a financial safety net to tide them over.

SBA might not be able to issue new rules in a timely manner. The agency has several proposed rules in the works, such as one that would make changes to the agency’s limitation on subcontracting regulations. The Office of Management and Budget previously decided not to allow agencies to issue new rules until February or later, and the shutdown will probably extend this delay.

Although these factors are starting to cause financial pain for small contractors, Bashur said some contracts may provide for immediate payment. This could go a long way toward making it through the shutdown relatively unscathed.

Work with the government or prime contractor to see if some kind of payment arrangement can be made, and be honest if continuing to perform without pay will cause significant financial hardship, he said.

In addition, he said firms should review requirements for proposal revisions. Many bids have a key employee provision, but if that employee takes another job during the shutdown or otherwise becomes unavailable, the proposal might need to be updated. If it isn’t, there could be grounds for a protest down the road.

Another tip: start the paperwork now for SBA loans, mentor-protege HUBZone certifications, etc., so it’s ready to go when the agency reopens. Backlogs for processing these applications are growing by the day, and anything that can be done to speed up the process will help.

Few Options for Small Firms

Devon Hewitt, a partner at Protorae Law, said small business contractors are in a particularly tight spot during the longest government shutdown in U.S. history.

“It’s harder for them because they have indirect expenses that are allocated over fewer contracts,” she told WashingtonExec. “The smaller you are, the more niche you are.”

She also said during previous shutdowns, firms have usually been able to hang onto most of their employees. But this time, the government has been closed for so long that people are being let go or are voluntarily leaving in search of paying work.

“If you let people go, what are the chances they’re going to be available when the government eventually reopens?” Hewitt asked.

She said small contractors can minimize the pain by:

  • Requiring employees to take paid time off or time off without pay for time-and-materials contracts;
  • Checking if employees can continue the work without government monitoring during the shutdown for fixed-price contracts;
  • If possible, retasking employees on proposals, capture analysis, and other overhead projects.

Related: Shutdown Starting to Hurt Contractor Staff Recruiting, Retention

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