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Canadian companies brace for impact of Washington showdown

The Captiol dome is seen silhouetted against the rising sun in Washington


Amid the heightened uncertainty sparked by the debt showdown in Washington, some of the companies most likely to be affected are drawing up contingency plans.

While they are hoping for an 11th-hour resolution before the Aug. 2 deadline, many companies have decided not to take chances, given rising fears of a credit downgrade or even a default if the U.S. government fails to raise its debt ceiling in time. To play it safe, they're boosting cash reserves and suspending non-crucial spending.

Many hundreds of Canadian businesses and other institutions are named as vendors to U.S. government departments on the Federal Procurement Data System, which lists the recipients of government contracts and financing details about those projects. These companies would likely be the first in Canada to feel the impact of a default.

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Ottawa's Edgewater Computer Systems Inc., whose biggest customer is the U.S. Department of Defence, is among them. Edgewater has several ongoing projects with the department, and "we're looking at the various contingencies," said Greg Fielding, vice-president of marketing.

"We're certainly looking at what the impact could be of a delay should the U.S. not raise the debt ceiling, if potentially there is a possibility that the U.S. government shuts down, which means we no longer have potential payments coming in."

In addition to focusing on developing more non-government contracts, Edgewater is trying to boost its cash reserves and has delayed some non-critical hiring. The company is also trying to determine if its current contract negotiations with the Department of Defence would be affected if government spending is slashed.

"It has led to a tremendous amount of uncertainty and uncertainty is never good in any type of business planning," Mr. Fielding added.

This week, CGI Group Inc. disclosed that its U.S. government contracts are being delayed. The Montreal-based company, Canada's biggest technology and outsourcing firm, has some 150 outstanding bids or proposals with the U.S. federal government, valued at more than $1.5-billion (U.S.), that have been slowed in the procurement process, said chief executive officer Michael Roach.

Michael Conway, chief executive and national president of Financial Executives International Canada (FEI Canada), said Canadian companies that do business with Washington have reason to be concerned about whether those contracts will be honoured.

"A worst-case scenario if they close down the government, you know, is some company's largest customer has just turned the lights out for a while," he said.

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While some Canadian businesses might not publicly admit it, Mr. Conway believes many are quietly fine-tuning their planning in response to heightened risk south of the border.

"Smart corporations always have contingency plans available … Recent history has told them that having ready access to liquidity is a good thing."

According to The Wall Street Journal, a number of large companies are already hoarding cash and lining up alternative sources of financing as precautions. Among those preoccupied with maintaining liquidity cushions are General Electric Co. and Ford Motor Co., the newspaper said.

Others, such as Wal-Mart Stores Inc. and Daimler AG, are also fretting about the long-term health of the U.S. economy.

Montreal-based Forensic Technology WAI Inc., which specializes in ballistics identification, said it isn't worried about its current U.S. government procurement contracts. Still, it is advising U.S. customers, which include various police forces, to lobby American lawmakers on its behalf to stave off major cuts to future contracts if government spending is chopped.

"It's more helping them talk to the right people to promote, to support their budgets," said Tim Heaney, vice-president of sales and marketing.

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MW Canada Ltd., a Cambridge, Ont.-based textile manufacturer, sells its waste-water filtration media to large scale waste-water filtration plants run by municipal, state and federal governments.

"My current U.S. contracts are credit insured, but future insurance contracts could become a problem," MW Canada's president Robert Berger said in an e-mail.

His biggest worry now, he said, is more rapid appreciation of the Canadian dollar: "If it goes to $1.10-$1.20 or more, producing in the U.S. will become a necessity."

Tradewinds Shipping Inc. is also worried about the impact of the debt crisis on the Canadian dollar. The Markham, Ont.-based company transports wheat and other donations to developing countries for aid groups including USAID, the World Food Program and World Vision.

Tradewinds president Baqar Naqvi said it is now losing about 25 per cent of its spending value as a result of the flagging U.S. dollar. "Because we earn in U.S. dollars and spend in Canadian dollars, we're not doing too good."

Still, some Canadian companies insist they are not worried. Carmanah Technologies Corp., a Victoria-based manufacturer of solar LED lighting, counts the U.S. Air Force and Coast Guard among its customers and says those long-standing clients have always paid their bills.

"Carmanah really has no concerns," said spokesman David Davies.

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