Contractors feel budget squeeze

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Funding for local contractors takes a back seat as the government focuses on Iraq, retirement and health costs.

"We've seen a tightening on the funding and less contracts," said George Wilson, executive vice president of strategic operations for Stanley Inc.

Stanley, an Arlington information technology contractor, has seen share prices fall 10 percent from a high of $18.02 in December to $16.16 yesterday. The company said its revenue mix between defense and civilian agencies is about 65 percent to 35 percent.

Stanley, like many technology contractors in the Washington area, said it is anticipating the effects of decreased federal spending.

Last year, Congress passed a temporary resolution to keep civilian agencies running at 2006 funding levels instead of passing budgets for fiscal 2007. The fiscal year ends Sept. 30.

"The dollars are there to get something accomplished, and when the dollars aren't there, things don't get accomplished," said Renny DiPentima, chief executive officer of SRA International Inc.

SRA, a technology firm in Fairfax, saw its shares fall 34 percent from $37.73 in March to $25.05 yesterday.

Although the company posted 5 percent growth in net income for the first quarter ended Sept. 30, Mr. DiPentima said SRA's federal and defense clients will face uncertainty from the funding halt and may pull back their development and discretionary spending.

"The government has asked everyone to tighten their belts," said Shiv Krishnan, president and chief executive officer of Indus Corp., an information technology provider in Vienna, Va. "As a result, we've seen lower spending on the civilian side."

Mr. Krishnan said the decreased funding for civilian agencies such as the Department of Health and Human Services and environmental programs encouraged Indus to focus on defense and homeland security contracts.

"We used to deal primarily with the civilian sector," Mr. Krishnan said. "But there seems to be more opportunities on the defense and intelligence side.

"Within the next three to five years, defense and homeland security will compose 60 percent of our business," he said.

Congressional spending for the war in Iraq has given defense contractors more breathing room than their civilian counterparts. The only two agencies that have approved budgets for fiscal 2007 are the Departments of Defense and Homeland Security.

"The defense sector is currently a more fertile hunting ground than the civilian sector," said Tim Quillin of Stephens Inc., an investment banking firm in Little Rock, Ark.

"But as the war winds down, there will be increased emphasis on federal government modernization," which means a bright future for civilian contractors, he said.

In the meantime, he said civilian contractors will have to find opportunities and pockets of federal spending that will help them survive the budget cuts.