How the Government Shutdown Affects Small Construction Contractors

One of the immediate effects of the shutdown is that construction companies working for government bodies may have to pause projects and wait for due payments until the deadlock passes.
By Vic Lance
January 13, 2019

The government shutdown that started on Dec. 21 has been running for more than three weeks. While the standoff between President Trump and congressional Democrats continues, its effects are already felt in numerous industries, including construction. It’s also costing the economy $1.5 billion per week, as assessed by J.P. Morgan.

Similar to other crises and deadlocks, the shutdown has the most significant repercussions for small businesses, which are the most vulnerable to outside influences.

The main reason for the obstacles that contractors have been experiencing is that nine federal departments are functioning at a minimum capacity because they have not received their budgets. Hundreds of thousands of government employees are furloughed, leaving federal services unavailable to the general public.

Beyond that, one of the immediate effects is that construction companies working for government bodies may have to pause projects and wait for due payments until the shutdown is over. This affects contractors performing services for the Departments of Agriculture, Commerce, Justice, Homeland Security, Housing and Urban Development, Interior, State, Transportation and the Treasury, as well as some of the smaller federal agencies. They are advised to seek information and assistance from each respective department.

The Small Business Administration is also heavily affected, with its loans put on hold for the time being. The delays can cost a lot for small contractors that are expecting to receive SBA funding in order to purchase equipment or take other business requiring financing.

Many construction specialists may have to miss deadlines and business opportunities. Additionally, subcontractors and suppliers that have to get payments from contractors that have not received their loans experience delays and are subjected to reduced operational finances. The withholding of the payments has a domino effect that’s difficult to contain.

The SBA Surety Bond Program is also at a halt, which is a serious hurdle for contractors that need its assistance. The program helps contractors that cannot obtain contract surety bonds in a regular way because they have just started out or have faced financial challenges. The SBA provides a guarantee to surety underwriters so that they extend the necessary bond backing to contractors.

Without the program, many small construction businesses cannot participate in public and private projects, as they cannot bid without the proper bonding. In the current situation, a number of companies may miss project opportunities due to this.

Another issue for contractors is that the E-Verify system is not working due to a lack of funding. Employers use the system to verify the employment eligibility of workers—an obligatory step for federal construction projects and a number of public contracts. As it is currently not available, construction companies cannot legally hire their staff. This is especially problematic for small businesses that have fewer employees and thus cannot shift resources internally to meet hiring demands.

In addition, the IRS’s services are disrupted. Contractors that want to obtain an Employer Identification Number (EIN) cannot do so currently, which means they cannot move on with their recruiting and many other necessary business processes. Thus, the negative effect on small construction startups is considerable.

Thousands of construction businesses already have been affected by the shutdown. The comment section below is open for contractors that want to share the difficulties they are experiencing, and how they are coping while the shutdown continues.

by Vic Lance
Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps contractors get licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business.

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