8 best bets for contractors to survive sequestration

As sequestration looms on the horizon, here are some ways government contractors can best prepare.

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.
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