Sequestration already hitting contractors

December 23, 2012

Whether or not President Obama and Congress avert sequestration — or a nearly $1 trillion cut to federal spending — contractors should brace for a very different environment in 2013.

Already, the threat of draconian budget cuts has caused federal agencies to realize new priorities, alter their procurement strategies, add scrutiny to their spending and — through collaboration with industry — seek ways to reduce waste and increase efficiency. Months of this kind of planning won’t end if sequestration dies.

By Jan. 3, sequestration will be enacted, delayed for the next Congress to handle or resolve. But in some ways, it won’t matter; for federal agencies, sequestration is just a magnified waypoint in the continuing process to cut spending.

Case in point: After 2010, agencies increased their use of task order-based contract vehicles, meant to help them streamline the bidding process. Rather than handling a large range of more specific contracts, agencies can simply push more of their spending through these contracting programs.

The Department of Homeland Security, for instance, makes purchases under 43 department-wide contract vehicles and plans to create another 10 in fiscal 2013.

Another change for contractors is ever-shorter contract performance periods. Where companies used to win work for three or five years, they are now winning one-year contracts.

As a result, contractors must compete more often or risk getting replaced, allowing agencies to seek new providers and potentially drive down costs

Simply put, the sequestration effect has meant agencies are prioritizing which contractors to retain and which to cut.

Winners in the new marketplace will need to be “champions.” Businesses that are proactive in predicting the government’s needs, versatile in reacting to change and market-savvy enough to translate their expertise into leverage to become prized teaming partners will come out on top in this environment.

Micheal Mullen is senior technical editor at Herndon-based Deltek, which conducts research on the government contracting market and can be found at www.deltek.com.

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