Tick tock. The day of reckoning is fast approaching when the federal government must automatically cut, or sequester, billions from its spending plans.
The process, mandated by the Budget Control Act of 2011, is set to begin Jan. 2, unless Congress changes the rules.
How likely is that?
Deborah Nixon, a government contracting expert with Ernst & Young, weighed four possible scenarios last week at a forum hosted by the Greater Washington Board of Trade. Under one, Congress would avert the blunt force trauma by drawing up an alternative plan for reining in the deficit, preferably before the November elections. Under another, Congress would act after the elections. Or it might make some cuts now and postpone others. Or members may simply let the cuts happen.
Those options would suggest a 50-50 chance that sequestration actually occurs, Nixon said. “But there is a 100 percent chance that budget cuts are happening.”
And that might be the most important take-away from the forum, which included Capital Business’s Marjorie Censer as a panelist: A pullback in federal spending now seems inevitable.
Much of the government contracting community is making preparations. They are reorganizing, pushing to lock in contract awards and establishing executive SWAT teams to respond to sudden program changes. Nixon said some companies might want to maintain flexibility by avoiding long-term leases and being stingier on overhead.
Firms need to be ready to compete on price. It’s becoming clear there will be fewer opportunities and more competition, so companies should focus on work they think they can actually win.
The reality is sinking in beyond the contracting sphere. “I’m not Chicken Little and I don’t believe the sky is falling. But this is not good for the region,” said James C. Dinegar, the Board of Trade’s president and chief executive.