Public Sector VARs Brace For Government Shutdown Impact

As the country focuses on the 800,000 government employees furloughed, closed national parks and dormant public services, solution providers are scrambling to account for delayed revenues and fighting to prevent a furlough of their own.

The government shutdown was enacted Monday at midnight as the House of Representative and Senate failed to come to an agreement on a spending bill to fund the government. The move sent home 800,000 "non-essential" workers; however, solution providers said the effect of the shutdown will be much larger as it ripples out through government contracts to smaller businesses across the country.

"I'm just a little guy, trying to do business every day, trying to keep my employees fed, and I don't need this added stress," said Dennis Jeter, president of A Sound Strategy, Inc.

[Related: Government Solution Providers Finally Hit By Sequestration, Study Says ]

The last time the government shut down was in the mid-1990s. The pair of shutdowns in 1995 and 1996 lasted a total of 27 days and cost $1.4 billion dollars, according to a government study. The same study said the shutdowns "created numerous backlogs in government services that will, in many cases, take months to overcome and slow the delivery of future services."

That is the problem for solution providers in the public sphere, wrote Nishant Shah, senior analyst of public sector at market research firm Ovum, in a research note. In fact, Shah wrote in his analysis, the problem could be more extensive for IT than the last time around because of the increased reliance on technology today. Depending on how long it lasts, the shutdown could lead to overrun costs and lost momentum as ongoing work is delayed or halted. While the shutdown is in place, no new government contracts or extensions will be signed.

On the bright side, however, due to the growing reliance on technology, Shah wrote, more public sector IT employees are likely to be considered as "essential" than during the last shutdown.

"The firms most at risk are SMEs -- those that would be forced to shut down from cash flow problems resulting from government crises," wrote Shah.

Bill Gleich, president of Jeskell Systems, said that more than half of his business is in the public sector, which leaves him anxiously counting down the days until the shutdown is over. The bigger effect, he said, is not whether the shutdown happens, but how long it lasts.

"If it's going to be more than the end of the week, then we're going to have to make decisions about finding capital to tide us over or possibly furlough people," Gleich said. "We're hopeful this will be short term and we can get back to business as usual so we don't have to make ugly decisions."

NEXT: The Effect Will Be Bigger Than You Think

The effect will be much larger than just those who have government contracts, said Sound Strategy's Jeter.

Jeter said his company repositioned itself away from government a year ago after losing two army contracts in the growing uncertainty around the sequestration, which is now in effect. Even though his company has turned away from the public sector, Jeter said he expects to feel a big hit from the shutdown.

"Those are people who would normally be spending money. ... All of that stuff trickles down. With the government shutting down like this, there has to be an economic fallout that is going to be far reaching. It's just going to affect so many businesses in so many different ways," Jeter said. "The fear is that with all of this craziness going on with the government, it will start to affect the psyche of the SMB market."

Jeter said that all of the companies with federal government contracts will be affected, with layoffs looming if the government does not renew the contracts. The government cannot sign or extend contracts during the shutdown.

Jeter said he blames all of Congress for the problem and said it will be a stunt on innovation and small business, calling the entire situation "unbelievable."

"Innovation starts with small business. It starts with small ideas that grow into big ideas. That's just where it is. I have to innovate every day as a small business owner. ... Once you've taken that opportunity away from a guy like me who has that need to innovate to survive, I think everyone suffers. It's what makes America America. I have that spark in me that wants to make things better than they are," Jeter said.

"Now that we have this government shutdown, it's just so clear that everyone is so thoroughly entrenched in their ideological foxholes that they can't even see the rest of the world around them, and now it's affecting small business," Jeter said. "When it affects small business, it affects everyone."

PUBLISHED Oct. 1, 2013