Government Shutdown Hits Federal Contractors

7 million full-time jobs estimated to be tied to U.S. government contracts.

Since the U.S. government shutdown started, one-fourth of MicroTechnologies LLC’s workforce of 400 in Vienna, Virginia, has stayed home. The headquarters is like a “ghost town,” Chief Executive Officer Tony Jimenez said.

“I’ve seen more people cry in the last couple of days than the last few years,” Jimenez said in a phone interview yesterday, after six federal agencies he wouldn’t identify told the company to stop work on contracts. “You don’t take people’s jobs and play Russian Roulette with them.”

The partial shutdown that began Oct. 1 is beginning to have a ripple effect on federal contractors, which employ millions of people and attract more than $500 billion in annual awards. Costs will rise each day that government offices remain closed. The defense industry, the single biggest recipient of contracts, will likely be the hardest hit.

United Technologies Corp.’s Sikorsky Aircraft business slowed production of Black Hawk helicopters after Pentagon inspectors were furloughed due to the shutdown, Gregory Hayes, the company’s chief financial officer, said Oct. 1 at a meeting with analysts and investors in Monterrey, Mexico. The inspectors are required to do reviews of the choppers as they’re being manufactured, Hayes said.

About 800,000 federal employees have been furloughed.

“The immediate impact of the U.S. government shutdown on Sikorsky is only manageable for a short time,” Paul Jackson, a spokesman for the Stratford, Connecticut-based division, said in an e-mail. “Any extended government shutdown will considerably impact our business.”

United Technologies is poised to furlough almost 2,000 Sikorsky Aircraft employees in Connecticut, Florida and Alabama on Oct. 7, according to a company statement yesterday. The total “could exceed 5,000 employees if the government shutdown continues into next month,” the contractor said.

Shares of United Technologies fell 2.2 percent to $104.98 in New York trading. A Bloomberg Government index of 68 government contractors declined 0.4 percent yesterday. It has dropped 6.4 percent since Sept. 27, compared with a 0.13 percent gain in the Standard & Poor’s 500 Index.

Contractors should be able to handle a short-term shutdown, said Larry Allen, president of Allen Federal Business Partners, a consulting firm in McLean, Virginia. If the government stays closed for several weeks, vendors may consider layoffs, he said.

“If we get to that point, the whole country will be hurting, not just government contractors,” Allen said in a phone interview.


Expiring Passes

There are an estimated 7 million full-time equivalent jobs tied to U.S. government contracts, Paul Light, a public policy professor at New York University, said in a phone interview.

NSC Technologies Inc., a closely held staffing company based in Portsmouth, Virginia, is having a hard time getting some of its employees access to Navy shipyards because most of the federal offices that supply passes are closed, said Tanya Rieger, vice president of workforce development.

About 250 NSC employees working in southeastern Virginia, where much of the Navy’s ship repair and construction work takes place, have badges that are valid for a year or 28-day temporary passes, Rieger said in a phone interview.

“If the government doesn’t open back up, those passes will expire, and there is no way for these workers to get back to the shipyards,” she said.

The company provides skilled workers to prime, or direct, contractors such as London-based BAE Systems Plc, Falls Church, Virginia-based General Dynamics Corp., and Newport News, Virginia-based Huntington Ingalls Industries Inc., she said.

If NSC can’t get its employees onto work sites, the larger companies won’t have the staffing they need to fulfill their contracts, she said.

“It’s a domino effect,” Rieger said.

Some 10 percent to 15 percent of the 34,500 U.S.-based employees of a unit of London’s BAE Systems Plc may be affected by the shutdown, said Neil Franz, a spokesman for BAE Systems Inc.

The U.S. unit is still waiting for guidance from the executive branch, including the Pentagon and the White House’s Office of Management and Budget, on reimbursement and eligibility for pay allowances during the shutdown, Franz said in an e-mail.

BAE Systems Inc. will pay its employees through this workweek, Linda Hudson, the unit’s chief executive officer, said Sept. 30 in a Facebook message to employees. It’s unclear what will happen to employee pay if the partial government shutdown extends into next week.


Furloughs Possible

The company will provide as much notice as possible of furloughs or other potential actions affecting employees, Franz said.

USEC Inc., a Bethesda, Maryland-based supplier of nuclear fuel to electric utilities, may need to consider furloughs among the 959-person workforce for a uranium-enrichment project if the budget impasse continues past mid-October, Paul Jacobson, a spokesman, said in an interview. No decisions have been made, he said.

The two-year, $350 million American Centrifuge project is on schedule and on budget, and it needs $48 million in federal funding in the year that began Oct. 1 to be completed by the end of 2013, Jacobson said.

Jimenez, the CEO of MicroTechnologies, said his closely held company, which does work for the Department of Homeland Security and Department of Veterans Affairs among other agencies, will be 10 years old next March.

Some of his staff took vacation time and others were on unpaid leave, Jimenez said, adding that he has never experienced such difficult times.

“The bottom line is you really are adversely affecting people’s ability to make a living with this shutdown,” he said. “Some of my employees may be home right now thinking, ‘Why do I want to work in a space where every time there’s an issue the House or the Senate doesn’t like, our jobs become a bartering chip?”


 Bloomberg News

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