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Problem of Survival

April 03, 1988

The financial problems faced by large defense contractors due to recent regulatory changes ("Industry Study Claims Reforms Will Weaken Defense Sector," March 16) are greatly magnified in the case of small contractors and subcontractors.

These small businesses, in many cases, do not have the option of borrowing to finance their contracts because banks will not lend to them. If they can get financing, they pay higher interest rates than the large contractors that participated in the trade study cited in the article. And, as the article mentions, interest is not a reimbursable expense, so it comes out of the bottom line.

Cash-flow problems seriously threaten small contractors' ability to meet their commitments, including payroll. But no one seems particularly interested in their plight, even in the face of the massive unemployment that would result from their failure.

It's a good thing that the larger contractors are able to bring their cash flow concerns to Defense Secretary Frank C. Carlucci and that the secretary seems sympathetic, because this is an industrywide problem. The larger companies have their stock prices to be concerned about; smaller contractors worry about survival.

IRENE M. GUIMERA

Hermosa Beach

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