Contractors granted more certainty with new budget deal

January 19

The two-year bipartisan budget plan, along with the budget released last week, have brought more certainty to government contractors, but executives and industry advocates say times remain tight.

Contractors last year complained that it was impossible to plan, given the uncertainty of spending plans. To make matters worse, they said, the automatic spending cuts known as sequestration were spread evenly across programs, hitting even the highest priority initiatives.

“The last couple of years were really chaotic,” said Marion Blakey, president and chief executive of the Aerospace Industries Association. “From a business standpoint, that is in­cred­ibly difficult to navigate through, and you’re not able to make sound, long-term decisions.”

Contracting advocates said the new budget deal provides near-term certainty and eliminates sequestration’s requirement of cutting the budget evenly — or applying a peanut butter spread.

Federal agencies are “more confident to go commit and spend on their needs,” said Stan Soloway, president and chief executive of the Arlington-based industry group Professional Services Council. “The market is not going to get back to where it was 2009 ... but it’s not collapsing.”

Brad Antle, chief executive at Fairfax-based Salient Federal Solutions, said Salient isn’t going to be making new investments quite yet, but is optimistic that the contractor will soon see agencies moving forward with new purchases.

“My expectation is that we’ll see a lot more money being put to projects and programs over the next couple of quarters,” he said. “Last year, their seemed to be a hesitancy to put funds on contract.”

Still, analysts and industry advocates said the funding level itself isn’t markedly changed from last year for contractors. The budget deal returns about $60 billion of the sequestration cuts to the budget, spread across 2014 and 2015.

At the Pentagon, “virtually all of [the sequestration relief] is going to go to readiness,” meaning things like training and civilian pay, said Todd Harrison, a defense analyst with the Center for Strategic and Budgetary Assessments. “I don’t think that this actually is going to help industry that much.”

Soloway said contractors expect agencies to continue trying to save money on their contracts.

“Austerity is still a very real deal,” he said. “Agencies still have to be very careful how they spend their dollars, but knowing how much they have ... is a significant improvement over where we were.”

Contractors agreed that the first step is just to get proposals moving again. Tony Smeraglinolo, chief executive at Chantilly-based Engility, said his company’s strategy is predicated on offering competitive prices to win work away from incumbents.

If proposals aren’t being released, this strategy is simply unworkable.

“It is impossible for us — or anyone — to take away market share if the [requests for proposals] don’t come out,” Smeraglinolo said.

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