Economic uncertainty and sequestration are hitting small defense contracting companies especially hard as they attempt to compete for contracts with larger, more financially robust companies.
In a recent installment of the Federal News Radio special report series, The Private Side of Sequestration, it was reported that last month five of the largest defense contractors- Northrop Grumman, General Dynamics, Boeing, Raytheon, and Lockheed Martin, showed significant increases in earnings and stocks.
Even with the ever-increasing government budget cuts, constraints, and cancellation of contracts, the bigger and wealthier defense contracting firms are seeing profits due to their ability to wait out contract and budget holds. This ability gives them an advantage over smaller companies who don’t have the same fiscal cushion or resources to sustain them.
Long holds on government contracts can be especially damaging to small businesses as they have less capital and resources to sustain them. Small firms don’t have the same amount of monetary cushion or staff options, and they generally aren’t able to hold out until contract issues and cuts are resolved.
To make matters worse, there is an increasing trend of government opting to choose one big prime contract, especially when they have specialty niche capabilities, over sub-contracting with smaller firms. A culture of ‘chronic indecision’ is a problem for smaller defense contractors. It is difficult to provide solutions to a customer who doesn’t know what they need, or if they can afford it. The problem goes beyond sequestration and is seen in the continued budget delays and continuing resolutions.
Deep cuts to their bottom line are going to have a much larger impact small firms’ ability to hire, or even maintain current staff. The big firms have more flexibility than smaller ones, as they may have contracts in areas where cuts have not been as deep.