Gov't contractors face mounting problems amid slimdown

They are known derisively by some as "Beltway bandits." But the hundreds of government contractors -- from mammoth defense operations to tiny small software firms -- that ringthe Beltway and beyond make up a $70 billion industry.

Now some are beginning to suffer tangible effects from the government slimdown -- although others are virtually unaffected.

"You've got $300 million every day going out of the economy because of the shutdown so that's directly impacting small business, creating a tremendous amount of uncertainty," says John Arensmyer, CEO of the Small Business Majority.

"Many businesses can survive for awhile, but they want to keep operations as normal as possible. If they're losing money, they can't do that after a while," he warns.

Last Friday, Lockheed Martin, whose headquarters are in suburban Bethesda, Md., announced it would be laying off 3,000 employees. It reduced that number by about 600 when the Pentagon announced it would recall almost all of its civilian employees.

General Dynamics of Falls Church, Va. planned no layoffs, while United Technologies of Hartford, Conn. canceled plans to furlough 2,000 of its employees.

The scale of the slimdown’s effect after only one week is nearly impossible to quantify. First, many of the government workers who keep track of economic indices are, themselves, unable to work.

As well, the sheer size of the federal government andthe intermingling of full-time employees with contract and part-time workers makes it difficult to catalogue the effects.

Alice Rivlin, an economist with the Brookings Institution and director of the Office of Management and Budget during the Clinton administration, told Fox News that a great deal of judgment plays into determining what is considered essential and non-essential throughout the government contracting world.

"At the National Institutes of Health, we sent the researchers home, but you can't leave the laboratory animals to starve,so we declared the people who took care of the animals were essential, while the researchers were not," she said.

Production disruptions could cause another hit. Black Hawk helicopter workers are preparing to be furloughed, and Boeing jets may face delivery delays. Navistar International Corp, which makes military trucks and engines, has halted all work on military contracts.

One contractor says that the slimdown is "slowing down an already slow machine."

Small businesses that feed off the mammoth federal presence around Washington, such as food vendors and t-shirt sellers who ring the now-blockaded monuments and museums, are perhaps more directly impacted.

"Mike Bray, who runs Hobby Works, a chain of hobby stores in both Maryland and Virginia, is not a government contractor, but he's actually serving a clientele that are dependent upon government contracts," says Arensmyer.

Stephen Fuller, an economist at George Mason University's Center for Regional Analysis, told the Washington Post this week that he expected the Washington area economy to lose over $200 million a day from the slimdown – an estimate that became partly moot when Congress passed a bill that would pay government employees for the time they were idled.

The pending showdown over the debt limit, he told the Post, is a "bigger problem."

Rivlin agrees. "I'm horrified that we are even having a conversation about the United States government not honoring its obligations and not paying its bills,” she said. “It’s a ridiculous situation for the greatest country in the world to be talking about not honoring its obligations. We shouldn't be here."