Federal managers aren’t the only ones spooked by the prospect of sequestration-induced budget cuts. Contractors are worried about it too. But the potential numbers – dollars that would be cut – present a smaller problem than the lack of planning the government seems to be doing to prepare for the sequester. Unless Congress acts otherwise, a 10-year, trillion dollar cut in spending starts January 1. That’s a $100 billion a year, $50 billion for civilian agencies, $50 billion for Defense. Sequestration is more a reduction in future growth than absolute declines in spending.
In the grand scheme of things, the numbers aren’t that big. But it would be nice to know precisely where agencies are going to make their trims. It’s likely few agencies know. This is why a bill passed the House Committee on Oversight and Government Reform, demanding that the executive branch detail its sequestration plans.
This article originally appeared on FedInsider.com
Program managers, through their contracting officers, might ask contractors to share the pain by cutting prices. So contractors would have to cut costs, and in turn share the pain with their suppliers. This prospect seems to be what prompted Lockheed Martin CEO Bob Stevens to remark at an industry day, that sequestration might end up costing the government more for contracts.
How’s that? Stevens, who was probably thinking of the F-35 fighter schedule and quantity, explained that contract modifications give suppliers the right to make claims of higher costs when bid prices were based on a promised quantity and delivery schedule.
It’s a debatable point, but it shows how skittish at least the large systems integrators are getting. Jason Miller provided extensive quotes on Stevens comments here.
Looking across the landscape of recent events, you realize contractors have several reasons to be skittish, besides the prospect of sequestration. For instance, the 2013 defense authorization bills that passed the House and Senate both contain sharp caps on how much contractors can receive from the government to reimburse them for highly skilled or executive personnel on contracts. Now the number will be $237,000, down from more than $700,000. The lower figure may scratch a congressional populism itch, but it does little or nothing to save the government money, according to Congressional Budget Office reckoning.
Equally bad from the contractors’ point of view is language that forces the government to cut service contractor ranks by numbers equal to headcount reductions on the government side. This is a slightly brainless notion that removes too much discretion for how the government is able to manage through uncertain times.
Then there is the rise in reverse auctions. Bloomberg Government reports use of reverse auctions is on the upswing in DOD agencies. It’s not just IT contractors feeling that particular pinch. The Associated General Contractors of America wants to see reverse auctions banned for federal construction contracts. What might be particularly galling to contractors who win after repeatedly slashing prices is the 3 percent fee charged by the contractor facilitating the reverse auction.
So it’s sort of like death by a thousand cuts for contractors these days, or at least it looks that way. But the big picture is that federal spending, in truth, will only get a trimming around the edges. Everyone is sharpening their pencils accordingly.