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The Defense Department and the contractors supporting it have seemed largely unaffected by the partial shutdown. But now, as the shutdown is more than a month old with no end in sight, even some large firms with defense-heavy contract portfolios are beginning to feel the squeeze.
Science Applications International Corp. (SAIC), an IT firm that gets about 50 percent of its work from DoD, has more than $100 million in bills the government has not paid it because of the shutdown, CEO Anthony Moraco said Jan. 23.
Though the Pentagon is fully-funded for 2019, Moraco said DoD is affected when its contractors suffer.
“In this era of high demand for mission capability, faster time to market for certain mission needs and rallying industry to invest more for innovative solutions, I can only spend a dollar once,” Moraco said during a Washington event hosted by Defense One. “If in the next two weeks I’m spending that dollar on a labor investment to protect our smart talent, then that’s two weeks of labor, a few million dollars, that I don’t have to invest in a technology or in an integration effort on behalf of the government.”
Moraco said the Pentagon is keenly aware of this dilemma.
SAIC’s portfolio puts about 15 percent to 18 percent in intelligence and more than 30 percent in civilian agencies like the Federal Aviation Administration, Agriculture Department and NASA. Those agencies are currently affected by the shutdown, forcing SAIC to reconfigure its finances.
The company’s fiscal year ends at the end of the month, so the shutdown is having a real impact on SAIC’s last quarter.
“Our peers have the full calendar year to repair from the shutdown, if it ends soon, so it will be less impactful for them,” Moraco said.
More than 1,000 SAIC employees are affected by the shutdown, about 5 percent of the company’s workforce. Moraco said the talent market is too strapped to risk losing employees, so SAIC is finding alternative ways to keep them on the payroll.
“We’ve elected to extend out employees’ administrative leave,” Moraco said. “It allows our staff to basically charge to an SAIC account. We are in a very competitive workforce environment, so retention is critical.”
SAIC is working in two-week blocks, trying to stretch its dollars and encouraging some employees to take vacation time. Moraco said the company sees it as an investment to take care of its staff, but it’s having an effect on the cash flow.
The company is losing $10 million a week due to the shutdown, Moraco said at an investor conference on Jan. 7.
“We’ll recover on the revenues,” Moraco said. “But with cash, the billings are no longer getting paid. Companies like ours have the fortune of being large enough in scale to have the financing to back up payrolls. A lot of small companies concentrated in civilian agencies don’t have that flexibility. The longer this goes, the harder it gets to recover.”
Smaller companies are feeling the shutdown the most. Moraco said he’s aware of some subcontractors who furloughed employees, but has yet to hear of anyone being laid off.
Companies more entrenched in defense say they are not yet feeling the impacts of the shutdown at this point.
To date, Lockheed Martin has not reported any issues regarding the shutdown.
Boeing is not seeing any significant effects, but is worried, the company said.
“While the partial government shutdown has not had a material impact on Boeing to date, we are concerned about the short term effects on our friends, families and neighbors in the communities we operate in as well as the long term effects that may begin to weigh on our operational efficiency, pose other challenges for our business and the aviation sector in general,” Betsy Stewart, a spokeswoman for Boeing told Federal News Network.