Periscope maker closes as small vendors head for fiscal cliff

Posted: September 21, 2012

After a half-century of making periscopes for armored vehicles, Miller-Holzwarth Inc. shut down, having struggled with U.S. military budget cuts and the threat of more reductions to come.

Jennifer Moll, 45, owner of the Salem, Ohio-based manufacturer, said she was out of options. So during lunchtime on July 30, she delivered the bad news. She and her 47 employees were out of work.

Small contractors such as Miller-Holzwarth have been called "the engine of job growth in our economy" by the Obama administration. They also may be the most vulnerable if $1.2 trillion in automatic U.S. budget cuts take effect in January, contract attorneys and some lawmakers say.

"Last year cut into the muscle, this year cut into the bone," Moll said in an interview. With the so-called sequester looming, she worried that she'd "get the rug pulled out from under" her, Moll said.

The federal government's small vendors already have taken the brunt of U.S. spending cuts. Their awards fell 5 percent during the fiscal year that ended Sept. 30, compared with a 1 percent decline for all contracts, according to procurement data compiled by Bloomberg.

The automatic budget cuts through 2021, known as sequestration, might inflict more pain if President Obama and Congress don't agree to delay or alter them. They may combine with tax cuts scheduled to expire at the end of the year, setting up a so-called fiscal cliff that lawmakers from both parties say they want to avoid.

"The sweeping, unfocused cuts of sequestration are certain to have unintended negative consequences, including for America's small businesses," U.S. Rep. Sam Graves (R., Mo.), chairman of the House Small Business Committee, said in prepared remarks for a Wednesday hearing on the subject. "I think we all agree the patient is sick, but I'd prefer that the surgeon use a scalpel rather than a meat cleaver."

With fewer small businesses, the government will have to deal with less competition and innovation, as well as higher prices, Graves said.

Unlike large vendors such as a Lockheed Martin Corp. and Raytheon Co., small contractors have a number of disadvantages.

The small firms are more likely to be in the supply chain for only a single program, leaving them more vulnerable than large companies that work on several projects, said Holly Roth, a partner at Los Angeles-based law firm Manatt, Phelps & Phillips LLP, who specializes in government contracting.

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