Small Defense Firms Caution That Shutdown Will Undermine Industrial Base

Key Takeaways

Small defense technology firms warn that a government shutdown would severely harm their operations and the defense industrial base.
Past shutdowns resulted in significant losses for small vendors, including a 40% drop in government spending.
The organizations are advocating for a bipartisan continuing resolution and early guidance for contractors to minimize disruptions.

Concerns About a Possible Government Shutdown

A coalition of defense technology startups and small firms is urging lawmakers to prevent an imminent government shutdown, emphasizing its detrimental effects on the defense industrial base and innovations in technology. In a letter sent to key congressional leaders and the Office of Management and Budget Director Russ Vought, various organizations—including the Software in Defense Coalition and the Silicon Valley Defense Group—expressed serious concerns about the potential consequences of a shutdown.

Historically, government shutdowns have led to the furloughing of senior procurement officials, delayed acquisition processes, and disruptions in science and technology programs. The groups pointed out that even major initiatives like the F-35 program nearly faced production halts during the 2013 shutdown. For small vendors, who operate with tighter profit margins and cash flows, a shutdown poses an even greater threat than for larger firms. The letter cites a significant decline in government contracts for these small businesses during past shutdowns, with approximately one-third experiencing loss and overall spending reducing by around 40%.

The letter further notes a troubling trend: small companies constitute an increasingly minor part of the defense industrial base, having decreased by 40% over the past decade. The organizations warn that government shutdowns exacerbate this trend, pushing startups out of the defense sector at a time when U.S. strategic competitors are making rapid advancements.

Concerns about a weakening defense industrial base have been echoed by other organizations, including the National Defense Industrial Association. Research indicates a drop in the number of new vendors entering this sector, resulting in fewer innovative options for government contracts.

Additionally, the financial fallout from past shutdowns has cost taxpayers billions. A 2018 report from the Senate Homeland Security and Government Affairs Committee estimated that three recent shutdowns cost nearly $4 billion in back pay, lost revenue, and late fees. The Congressional Budget Office’s study on the 2018-2019 shutdown estimated a GDP loss of $11 billion during that five-week period, further underlining the high economic cost of such closures.

With the deadline for funding looming at the end of the fiscal year, concerns grow as lawmakers appear far from reaching an agreement to avert a shutdown. The coalition is advocating for swift passage of a bipartisan continuing resolution and a 2026 defense appropriations bill to ensure government operations can continue smoothly. They also press for protective legislation to mitigate financial strains on military personnel and essential staff in case of a shutdown.

The organizations recommend early guidance from agencies to contractors regarding exempt activities during a shutdown, alongside requests that the Pentagon minimize furloughs for employees essential for public safety and national security protection.

The situation remains critical as time runs short for Congress to take action and avoid the significant repercussions a government shutdown would impose on both small businesses and the broader defense landscape.

The content above is a summary. For more details, see the source article.