Sequester hits government contractors unevenly
An F-18 fighter jet takes off during flight training on the U.S. nuclear-powered aircraft carrier Abraham Lincoln off the coast of Kyushu, Japan.
There's been a lot of attention paid to furloughs of government workers because of the sequestration -- those across-the-board cuts to the federal budget that went into effect March 1. But what about all the contractors the government does business with? Some have indeed taken a hit, while others are sitting pretty.
Robin Lineberger is one of the winners in the sequestration struggle. He heads up the government contracting arm of the consulting firm, Deloitte. Lineberger’s division is huge, occupying eight floors of an office building in Arlington, Virginia.
On a tour, he shows me the Center for Federal Innovation. The center is like an airy lobby, giant computer monitors hang on the walls, employees cluster around them. Lineberger tells me Deloitte will lose three to four percent of its contracting business because of sequestration. But, the budget cuts also have a big silver lining for Deloitte. Smaller government contractors who are feeling the cuts are calling Lineberger. Saying, hey, wanna buy me?
“Shopping the businesses around, looking for alternatives," he says, "that’s been happening since the fall, into January of this year.”
And they’re offering Lineberger a bargain. The value of these companies has fallen 30 to 40 percent in the past eight months. So Deloitte is doing ok, but many other contractors are not. Small firms, like Davis Interiors, which is a family owned business founded in the 1950s that makes specialized furniture and fixtures for Navy ships at a small complex in Norfolk, Virginia.
Whitney Metzger, the company’s administrator, says normally at this time of year, “Our upholstering shop would be humming. Our work crews would be getting here at 7 a.m. and the phone would be ringing off the hook.”
Instead, she’s laid off six employees. The 26 who remain are only working four days a week. Metzger did get a bit of good news recently -- the Defense Department has decided to go ahead with a massive overhaul of the USS Abraham Lincoln aircraft carrier. Metzger is hoping to get some work on it.
NYU professor Paul Light, who studies contracting businesses like Metzger’s, says most contractors will survive because the government relies so heavily them.
“I mean there’s practically nothing that contractors don’t do," he explains. "And I suspect there’s nothing they wouldn’t do."
Light says, contractors will just have to get used to less government spending with more competition for fewer government contracts.