8 best bets for contractors to survive sequestration

As the doomsday deadline for sequestration nears and Congress continues its partisan squabbles, both government and industry are bracing for the blow set to be delivered Jan. 3, 2013. And while the public and private sectors alike are trying to plan ahead, they have different considerations and priorities that must be weighed – a key point that could mean the difference between surviving and falling victim to more than $1 trillion in across-the-board budget cuts.

“We’re seeing that agencies are already getting nervous about how to implement, and that’s where we’re seeing more solicitations being delayed, more decisions being postponed and modifications being made,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council. “This will get worse as it gets closer to the event.”

Chvotkin spoke as part of a panel at a July 10 PSC event in Arlington, Va., that addressed sequestration issues.

Agencies are buckling down on spending, which creates a ripple effect through industry, but the private sector has to handle things differently in preparing for sequestration’s impact, according to Bill Roberts, partner at Wiley Rein.

“Because of the profit imperative to which government personnel are not subject, contractors simply cannot conduct business as usual and at the same time hope to remain in business,” Roberts said.

So what can companies do to maximize viability as government and industry prepare for the budget ax?

  • Know your existing contracts: Take the time to do a full inventory and determine what types they are – indefinite delivery/indefinite quantity are increasingly common, time-and-materials less so. Determine what are severable and non-severable services: some will have to be carried over beyond the current fiscal year, but others may allow spending in fiscal 2013 for services carried out later.
  • Know your contract/program lifecycle: When does it expire, what are the option periods? “These can help not only with your planning but in discussions you have with federal agencies,” Chvotkin said. Also, contracts later in their lifecycle may be less flexible.
  • Strengthen ongoing performance: “Nothing will succeed in this area like a well-performing program,” he noted. Also, ensure relevant information in databases – such as past performance – are as accurate and favorable as possible.
  • Don’t forget implications for subcontractors and vendors: Determine what’s important to continue, or what may be brought in-house as appropriate or needed. Know where you stand in your small business performance record.
  • Engage your federal customers, both at the contracting officer and end-user levels: “This is about the importance of the work, the status, the performance, their plans and strategies going forward,” Chvotkin said.
  • After Oct. 1, maximize “run rates” – funds spent in the first quarter are exempt from sequestration, but contract action is still available, he added.
  • Also after Oct. 1, evaluate agency funding and spending priorities for both existing and new work. What must be saved, deferred or deleted?
  • Know the rules: There are lots of them to comply with, and knowing them well will help. For example, there has been a lot of attention on the federal WARN (Worker Adjustment and Retraining Notification) Act – it applies to all employers with at least 100 employees; it covers a physical, single plant site closing that results in the loss of 50 or more employees in a 30-day period, or a mass layoff of either 500 employees or one-third of the active workforce at the location. It doesn’t apply to closing a temporary facility or program, and it requires a 60-day notice. Advising staff of impending sequestration doesn’t count as the WARN Act, Roberts said.

About the Author

Amber Corrin is a former staff writer for FCW and Defense Systems.

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Reader comments

Mon, Jul 16, 2012

One of the primary responsibilities of Congress is to pass a budget that funds the Government by October first of each year. Congress has not fulfilled this responsibility for several years. It is likely one of the reasons we are struggling to stabilize and grow our economy. State Governments, medical laboratories, State Departments of Transportation, hospitals, retirees, defense companies, and universities are dependent on U.S. Government funding and grind to a halt when there is no U.S. Government budget. The trickle down effect when there is no U.S. Government budget is that State Governments cut back because they are unsure of the funds they will receive. Universities and colleges raise their tuition because the State Government cut back funds. State Departments of Transportation cut back due to lack of funds. Teachers and police are laid off due to lack of funds. Medical research is reduced or eliminated because a lot of the funds are provided by the U.S. Government. Defense contractors are unable to hire or begin new projects when Congress has not passed a budget. A continuing resolution can keep the Government functioning, but they cannot obligate funds for new projects under a continuing resolution. As all the people working within the entities affected by Government budgets cut back due to uncertainty over employment, they have a negative effect on companies who build homes. When fewer homes are built, there is less need for appliances and furniture. This affects retail sales of big items. As salespersons are laid off, they quit buying automobiles, clothing, etc., and more salespersons are laid off.
The U.S. Government budget is the base supporting road construction, Corp of Engineer projects, grants for education and education assistance, grants for police departments to buy equipment of hire more personnel, grants to State education departments to hire teachers, funds to conduct defense research and development, and purchase defense equipment. In an election year, Congress is again unlikely to pass a budget, which will adversely affect the whole country. In addition, not knowing whether sequestration will be necessary is affecting most Government contractors adversely. Congress should act.

Wed, Jul 11, 2012 Don United States

This is an excellent article on things organizations should be doing in preparing sequestration. There has been a real lack of actionable advice on how to handle sequestration.

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