Proposal consultants and employees everywhere are apprehensive about sequestration. We are entering uncharted territory. Several weeks ago on CNBC we heard Erskine Bowles, co-chairman of President Barack Obama’s National Commission on Fiscal Responsibility and Reform comment on the market and the upcoming challenges we will be facing.
“People are never going to understand how critical this particular time in history is,” Bowles said. “We have $7.7 trillion worth of economic events that are going to hit America in the gut in December, and in Washington they’re doing nothing about it,” he added.
Never in history has the U.S. federal government embarked on a plan to spend less each year for 10 years in a row. The good old days of increased budgets are apparently a thing of the past.
Everyone is asking the same question: What does all of this mean for me and my company? Due to the position of the political process at this time, there is little clarity as to the answer to this question. However, in this article, an attempt is made to address the question as far as possible at this time.
The Continuing Resolution
Federal agencies are presently working under a 6-month continuing resolution (CR) passed by congress. The CR provides same budget as last year plus $8 billion. However, the sequestration scheduled to go into effect on January 2nd cuts the budget provided in the CR by about 10% during the second federal fiscal quarter (January to March 2013).
Historically there is less proposal activity in the fall quarter when there is a presidential election. However, agencies are being urged to move forward with their programs this fall. Observers predict proposal activity will be higher than usual by end of the fall quarter and first of the winter quarter.
Regarding the election we can expect very little lull time if the president is reelected. This will also be the case if Romney is elected because his team has been quietly working on a transition plan since the start of June. In past campaigns, transition planning didn’t start so early.
The 6-month CR is valuable to the contracting process and to the president if he is re-elected. This helps move the procurement process forward and also provides continuity in the president’s approach to procurement as well as strengthens his hand in case there is a fiscal cliff problem with congress.
The feeling among industry analysts is that, for routine procurements, the CR provides enough authority to move forward during the period October through March. However, a continuing problem facing politicians is what to do about the period April through September of 2013. Which ever candidate is elected, the analysts expect the politicians to pass an alternative spending plan to reform the sequestration process moving forward in April.
At present, the sequestration process cuts about 10% from military programs and about 8% from civilian programs across the board. Everyone recognizes this situation needs to be rectified, so agencies will have the authority to make their cuts in a way that makes sense – to cut budgets in a way that supports the achievement of mission and goals.
The sequestration law cuts annual budgets by about $100 billion each year across the board during Fiscal Years 2013 and 2014. During the other 8 years of the sequestration program, the same about $100 billion is cut, but it is a bottom line cut, and how agencies accomplish he cuts is up to them. Some analysts predict that, after a couple of years, the politicians will figure out another way to do it, and thus we will not be looking at 10 years with a 10% cut each year.
Proposal Services Personnel
The expectation is that sequestration will go into effect. Undoubtedly sequestration will affect proposal personnel, both employees and consultants. Here at OCI we have already received a resume from a proposal services company professional who was laid off. Likewise, many government contractors will have to lay off business development personnel as the sequestration takes effect.
How much of a contraction there is in the proposal business remains to be seen. If this were just a mathematical equation, then there would be about 9% less proposal activity in 2013 than there was in 2012. However, the agencies have a choice on how to apply their cuts. Agencies have the choice to choose between cutting contractor programs or eliminating civil servants or a combination of both.
Where possible, many agencies may want to preserve their civil servants rather than their contractors. But one must also take into consideration factors such as this: The Department of Energy is about 80% composed of contractors, while Homeland Security is composed largely of employees. Further, there is the well known fact that agencies can usually get more productivity from contractors than from civil servants for the dollars invested.
The question that everyone would most like to have answered is this: How many proposal employees and how many proposal consultants are at risk because of this contraction in the federal procurement market? This question asks what will be the sum total of the decline in procurement work as agency budgets are reduced?
Will the net contraction be 9%, 18%, or some other number?
Unfortunately, no analyst is wise enough to provide a convincing answer to this question.. At least it is a fact that proposal specialists are nearly always agile people. Their business handling subject “A” today, “B” tomorrow, and “C” the next day inclines them to be agile. This is definitely a good trait to have in a changing market where people will have to find new options!