The government shutdown has put IT services businesses in considerable limbo, while hardware and software companies have some leeway before they feel the effects.
The $82 billion industry based on the federal government is contracted to the private sector, and IT vendors are already feeling the pain of the shutdown.
“If this lasts two weeks, that is about 2 percent of the year, which can be a whole profit margin for some companies,” Stan Soloway, CEO at the Professional Services Council, told FedScoop.
According to Soloway, most services companies are small to mid-size and some are forced to pay 40 to 60 percent of their employees although they are not needed during the shutdown.
“The impacts will get greater the longer this thing lasts,” he said.
Soloway warned the size of the company didn’t matter, however.
Contractors that deal with hardware and software have less to worry about, unless Congress takes longer to finally agree on a deal.
The savior for non-service companies is the lack of immediacy in supplying hardware and software.
If the shutdown continues for more than a month, those contracted for programs may have cause for concern, according to Shawn McCarthy, research director at IDC Government Insights.
“A lot of contracts have certain pay periods, so some may not be affected yet,” he said. Pay periods are certain dates the government pays contractors. If the shutdown is resolved before a contract’s next pay period, companies won’t notice a difference in payment.
Until pay periods are missed, shipments will continue. However if shipments actually stop, non-service industries will start seeing losses.
“It’s a tame thing,” McCarthy said. “In the last shutdown, there was barely any panic.”
Defense contractors, which can have up to 90 percent of their income tied to government contracts, will be affected most dramatically on the service and supply. According to Soloway, the high-level service companies are already taking a beating.
One thing keeping IT contractors from losing even more revenue is mandatory spending — money that must be spent despite the shutdown in areas such as Medicare, Medicaid and Social Security. According to the Congressional Budget Office, mandatory spending accounts for about 60 percent of United States’ budget and totals about $2 trillion. Vendors contracted for jobs that fall under mandatory spending will still be paid — regardless of what happens in Congress.
The government hires technology companies for three main uses: hardware, software and IT. The categories cover everything including cloud computing, email and consumer services.