Second shutdown hurts vendors, agencies

Information technology providers last week reported dampened profits and displaced personnel as the partial shutdown of the federal government stretched into its third week.

The impact of the longest government closure in history has made itself felt around the Beltway and beyond. So far services vendors doing business with such civilian agencies as the Environmental Protection Agency and NASA have been the hardest hit. Small businesses in particular have found themselves in a cash-flow crunch. Product vendors, for the most part, have seen less of an impact, although some are beginning to report shutdown-related problems.

Even with a potential resolution to the deadlock in sight, for some companies the damage has already been done. Silicon Graphics Inc. announced Tuesday that the government shutdown would contribute to lower-than-expected earnings for the company's second quarter, which ended in December. The workstation vendor cited delays or reduced orders by federal agencies.

Locally, BTG Inc. said the shutdown will affect the company's earnings for its December-ended third quarter. The company said work with such agencies as the departments of Education and Justice remains unfunded.

"What we have here is an artificial crisis manufactured by a pack of petulant politicians," remarked BTG chief executive Edward Bersoff in a Capitol Hill press conference last Thursday.

The human cost of the shutdown also increased last week as integrators large and small placed employees on leave. Among the larger integrators, Science Applications International Corp. idled 530 workers, about half of whom were working on the Environmental Protection Agency's $140 million Mission-Oriented Systems Engineering Support pact, a company spokeswoman said.

Similarly, DynCorp Information and Engineering Technology Inc., the high-tech subsidiary of Reston, Va.-based DynCorp, has nearly 20 percent of its 2,300 employees on furlough. The shutdown has cost the company about $134,000 a day in lost revenue, said Mark Filteau, president of the DynCorp subsidiary. DynCorp stands to lose about $2.6 million in revenue this month.

Elsewhere, Computer Sciences Corp. has furloughed 380 employees—about 3 percent of its federal work force. Most of the affected employees worked on NASA's $1 billion Program Information Systems Mission Services contract. And Hughes STX has put 400 employees on leave, 300 of whom worked at the U.S. Geological Survey's Earth Resources Observing System data center in Sioux Falls, S.D.

Smaller Vendors Hurt More

But smaller vendors, especially federal-focused small businesses and 8(a) firms, are hurting more because they lack the deep pockets of the large integrators and manufacturers.

"It is unfortunate that this budget battle has lasted so long," said Tico "Humberto" Pujals, chairman and chief executive of Government Micro Resources Inc., a Chantilly, Va., 8(a). "I can't ship orders. I can't collect receivables. I have programs stalled and employees idle."

"Every day we have to look at every contract we have and look at the status of funding, and every day there is the potential somebody has to be sent home," added Pete Belford, president of NYMA Inc., a recent 8(a) graduate based in Greenbelt, Md. NYMA, which provides engineering support services for NASA, Justice and the Department of Housing and Urban Development, has seen 15 percent of its 700 employees furloughed. All told, about $50 million out of its $100 million annual revenue comes from agencies without funding, Belford said.

Soza and Co., an 8(a) involved in federal information systems management, may need to cut staff from its core operations to keep its costs down, said Erik Van Brero, director of human resources at Soza, Fairfax, Va. The company has had 30 of its 200 employees furloughed because of stop orders.

"Being a relatively small 8(a), we are beginning to run into cash-flow problems," Van Brero said.

Manufacturers Weather Storm

Larger firms, especially hardware and software vendors, appear less vulnerable to the economic ravages of the government shutdown, as long as it does not drag on too long.

Dell Computer Corp. and Compaq Computer Corp. reported they are little affected by the shutdown. Both companies view the furloughs as deferred revenue they will eventually obtain.

"It has resulted in more inconvenience to the customers than anything else," said Theresa Garza, vice president of government sales at Dell. "We have had to adjust deliveries, and it delays revenue recognition, but in the grand scheme of things that is really not going to hurt Dell."

"The business will occur; it will just be delayed," said Gary Newgaard, Compaq's federal sales manager. "I am insulated by a rather large corporation." Compaq's federal business enjoyed strong sales in October and November as government buyers anticipated the shutdown, which helped Compaq federal's fourth-quarter sales, he said.

Some manufacturers continue to see revenue from projects that already have been funded, vendors said.

In many cases, "in those agencies that haven't been funded, we had executed some large transactions in the September time frame," said Mike Buchko, vice president and general manager of federal operations at The Santa Cruz Operation Inc., which markets Unix-based operating systems and tools.

Multiple-year projects have also provided some insulation for vendors.

"[Having] a little speed bump on an eight-year project, you really wouldn't feel anything," said Rich Smith, head of the federal division for Applix Software, which is a subcontractor on a number of large federal projects, including the Forest Service's Project 615.

Lingering Effects

Also, the impact of the shutdown is likely to carry beyond any agreement Congress and President Clinton make, vendors said.

"We expect this slowdown, which has basically encumbered many of the procurement processes, will have an effect that will linger for another 90 to 120 days," said Kevin Fitzpatrick, vice president of sales at Oracle Government Systems, Bethesda, Md.

More customers may be able to spend money after the furlough is over, but it will take time for money to filter down to the buyers, added Bill Barniea, director of sales and marketing for The Presidio Corp. "I don't expect there to be a [sales] peak immediately afterward," he said.

IT vendors, meanwhile, are monitoring developments in Congress that point to a potential resolution.

"Right now we are working on all of our contracts," said Randy Dove, a spokesman for Electronic Data Systems Corp. But the budgets for many of the company's civilian contracts will run out before long, so EDS is concerned. "[Funding] can't last forever," Dove said. "We sure wish this thing would get resolved."

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