For smaller contractors, sequestration comes down to simple math.
Small defense contractors bear brunt By Leigh Munsil
Sequestration is here, and the defense industry is reeling  -  particularly the little guy. After months of worst-case scenario projections of what $46 billion in across-the-board spending cuts would look like, defense contractors must deal with the reality that cash flow is about to slow down and, in some cases, disappear entirely. Story Continued Below
Particularly, lawmakers have warned, small defense contractors will bear the brunt of the cuts, especially in nearby Virginia and Maryland. "The contractors, except for the very large ones, many of them are going to go out of business," Rep. Jim Moran predicted in January. "They're dependent upon, oftentimes, two or three federal contracts, and that's all they have." "You're going to see a real economic slowdown in Arlington, Alexandria, Fairfax [and] Falls Church," the Virginia Democrat told POLITICO. For smaller contractors, sequestration comes down to simple math. "It all flows downhill," said Mark Drever, president of Xcelerate Solutions, a 100-person company in McLean, Va., that owes about half of its business to the Defense Department. "If there's no money, there are no contracts, and we're not going to be able to sustain and create new jobs." Deep, across-the-board defense cuts particularly threaten smaller companies, which rely on only a few contracts. "The industry is sort of waiting for the other shoe to drop," Drever said. "The agencies are still finalizing their exact plans for specific contracts." Adelle Pierce, president of AM Pierce & Associates, works with a number of small defense contractors as the industry co-chairwoman of the Naval Aviation Small Business Roundtable. "There is significant concern among the small-business community," she said. And the prospect of a yearlong continuing spending resolution compounds the problem. "When civilian furloughs occur, starting in mid-April, we're expecting that there will be an intent to similarly reduce contractor support tasking on contracts by a reduction in our contract funding," she said. Some small contractors are already being told that their Pentagon contracts will be canceled, Pierce said. One small company, which she declined to name, had to lose half of its workforce overnight. Even up to a few weeks ago, there was a possibility of averting sequestration. But now that it's gone into effect, the defense industry's mood is dour. "Everyone assumed that Congress would resolve this issue, and we wouldn't be facing sequestration," Pierce said. And Drever agreed that small businesses have been a bit blindsided by sequestration. "Have we lost faith?" he asked. "We're all extremely disappointed in Congress and their ability to reach across the aisle to reach a decision that potentially made sense for the country as opposed to political posturing that has created a very difficult environment for all parties. "There's uncertainty among smaller companies who, this is potentially their lifeblood," he added. Over the past several years, Drever said, his company has tried to diversify its portfolio, especially as the U.S. military was withdrawing from Iraq and Afghanistan. But for some companies, he added, sequestration will be devastating. "I guarantee you that some firms will go out of business as a result of sequestration," Drever said. "That's a fact." But even with all the cuts, he added, defense is still good business. "The fact of the matter is, this is still the largest adjustable market in the world," Drever said. "And even with a 10 percent reduction, while we're going to have to tighten our belts, the firms that have the true capability to perform and perform well, I believe, will rise to the occasion  -  they're the ones that will make it." Share on Facebook
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