Contractors can survive sequester by watching finances

May 12, 2013

Sequestration is in full swing, creating business woes for contractors. The problem is magnified by the fact that some agencies spent half of the fiscal year spending at a pre-sequestration rate, worsening the cuts for the rest of fiscal 2013.

But companies can mitigate the sequester’s effects by keeping a close eye on finances and at-risk contracts. Here are four vital tasks to pursue as sequestration progresses:

Look at contracts

Having a high-level view of every single one of your contracts is essential during sequestration.

Contracts that are costly for the government to terminate or are critical operations — such as managing a call center or operating a data center — are probably safe from cancellation.

But contracts for advisory services or computer upgrades that can be easily delayed with little damage are at risk.

Agencies will be eager to use fixed-price contracts to shifts cost risk to contractors. Companies should mature their processes as quickly as possible to better understand how contract changes could affect the bottom line.

Conduct risk analyses

By conducting a risk/opportunity analysis in the proposal phase, companies can better understand whether it makes sense to bid. Also, when the proposal heads to the execution team, a thorough analysis will give them the best chance for project execution success.

It is also important to do a risk assessment of existing contracts to understand the terms of termination, the option years and how essential those contracts are to government operations.

Prime contractors should dust off their subcontracting and teaming agreements and review the terms. Subcontractors may have rights that regulate how prime contractors can reduce their scopes of work.

Figure out the legal rights subcontractors have before attempting to limit or terminate their contracts.

Forecast revenue

Revenue will be difficult to predict because the scope and longevity of contracts may be in question. Companies may need to adjust cash forecasts; be realistic about the impacts of slower payments.

Creating revenue and cash forecasts gives companies needed information to make smart decisions. Use tools that allow modeling of multiple scenarios.

Manage invoices

Cash payments may slow down as the government tries to keep itself as liquid as possible, causing the length of time before a company is paid to increase.

Turn around invoices as quickly as possible, and make sure they are correct. Do not give agencies an excuse not to pay.

Lindley Ashline is tech editor at Herndon-based Deltek, which analyzes the government contracting market and can be found at www.deltek.com.

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