With their government contracts in limbo, small businesses await a historic shutdown’s end

The end of the longest U.S. government shutdown in history could bring much-needed relief to small businesses caught in financial limbo due to frozen federal contracts and funding. For seven weeks, these enterprises have been forced to reduce expenditures, contemplate staff reductions, and seek alternative revenue streams while attempting to contact unresponsive government offices.

House lawmakers are returning to Washington on Wednesday to vote on compromise legislation that would fund the government through January 30. Although a majority of Democrats are expected to oppose the bill, it’s likely to pass in the Republican-controlled chamber.

Small business owners holding government contracts report significant disruptions, including delayed payments and canceled projects. Many now face the daunting task of making up for lost time and revenue if operations resume.

Jackson Dalton, owner of Black Box Safety in El Cajon, California, which manufactures personal protective equipment, received a $1.9 million federal contract for flashlights just one day before the October 1 shutdown began. The agreement required an initial $1 million investment, but Dalton was unable to proceed as the contracting office stopped responding to communications.

“It’s had a major impact on our cash flow and operations,” Dalton explained. “Our suppliers are freaking out because they’ve been anticipating this award for about a year. They’re trying to spin up and order raw materials to build the goods needed for this contract.”

Throughout the shutdown, Dalton’s only communication from the government was an emailed stop-work order. The contract originally specified completion within 120 days, creating mounting pressure as the clock continues ticking.

Eric Veal, owner and president of Interactive Knowledge in Charlotte, North Carolina, has also been severely affected. His eight-person company, which creates digital interactive experiences for museums and cultural spaces, derives approximately 60% of its work this year from Smithsonian Institution contracts. Despite the Smithsonian’s mixed funding model combining federal and private sources, progress has stalled significantly.

“Federal employees are not able to work at all, and invoices and projects are at a complete halt,” Veal said. While some Smithsonian staff remained active due to non-governmental funding, it’s “just difficult to complete the work without a full staff.”

To manage the situation, Veal has reduced expenses and was preparing for potential staff reductions if the shutdown continued past mid-November. “We’ve got a date on the calendar that we will start to consider doing those things. And that’s really November 15th,” he noted.

The prolonged uncertainty has prompted Veal to reconsider his business strategy. “We rely on these contracts for the bulk of our work,” he explained. “The shutdown is making us second-guess that decision, in terms of really hitching our wagon as heavily as we had to Smithsonian… We are considering really lessening our reliance as a company on federal contracts.”

The shutdown has also derailed broader small business advocacy efforts. Approximately 2,000 small business owners gathered in Washington, D.C. on October 29-30 for a summit organized by Goldman Sachs 10,000 Small Businesses. Participants had planned to discuss critical issues like artificial intelligence, capital access, and employee retention with elected officials and policymakers, but found the shutdown dominating conversations.

Joe Gelardi, president and CEO of Vectrona in Virginia Beach, which provides operational support and technology services to defense agencies and contractors like Lockheed Martin and General Dynamics, expressed frustration that the shutdown “overshadowed” the conference’s intended focus on proactive policy advocacy.

Gelardi’s company, which provides technology and training for military personnel operating complex equipment, has experienced delayed contract processing and payment issues. Despite financial strain, his team continues working to maintain customer relationships.

“Companies are being asked to carry the load, and we do it in most cases because we don’t want to let our customer down,” Gelardi said. “But it’s really unfortunate that the federal government is transferring the burden and asking us to be the ones to carry that cost and find a way to fund the work and manage.”

Karen Jenkins, president and founder of KRJ Consulting in Columbia, South Carolina, compared the shutdown’s impact to that of the COVID-19 pandemic. Her management consulting firm has seen contract renewals canceled and promising new opportunities withdrawn.

“There were other contracts that we were tracking that we had a high probability of winning because we probably had the best past performance and rate, but they were pulled,” Jenkins explained. She remains cautiously optimistic that when operations resume, government agencies might require additional support to address backlogs, potentially creating new opportunities for firms like hers.

“We are just trying to hold on for dear life to see if we can maintain so that we can be that resource for the government when it reopens,” Jenkins said.