In contrast to federal employees, many of whom are facing tangible impacts from automatic budgets cuts — furloughs — many contractors have encountered more elusive sequestration symptoms.
“It’s not like you have an entire project disappear overnight,” said Tom DeWitt, president and CEO of SNVC, a veteran-owned IT firm, in an interview on In Depth with Francis Rose. “But there are cuts that are occurring, so you’re losing one, and two and three people maybe over a period of a month to six weeks. When that happens, that definitely — for a company my size — impacts that bottom line and the top line as well.”
So far this fiscal year, contract awards are down by about 32 percent compared to last year, according to federal procurement data compiled by Govini.
“It’s not dire, but it has definitely led to stagnation; there’s very little growth going on right now, just because of the lack of new contract awards.,” said Michael Tinsley in an interview on Federal Drive with Tom Temin and Emily Kopp.
Reduced government contract spending is one part of the budget morass contractors find themselves in, DeWitt said. The effects of the aforementioned federal-employee furloughs have also trickled down through the procurement process, resulting in delays.
“When you see things like the furloughs begin to happen, you’re starting to take hard-working people out of the workforce for one day a month, or whatever, that impacts schedules big-time,” DeWitt said. “So, now, companies are having to adjust.”
In the short-term, many companies are looking to reduce spending, particularly in their general-administrative costs (G&A), Tinsley said.
“Because, as they’re dealing with sequestration — and many of them are dealing with furloughs — that’s translating into an increase in their overhead expenses. And so they have to offset that cost increase in some way so that their total cost doesn’t go higher than it should be.”
Advanced planning, even months out, is becoming essential.
If you know that you’ve got something hot that’s got to go through, you’ve got to do everything you can to make sure that that particular item gets addressed,” DeWitt said. “Now, certain things, obviously, we can’t influence … But if there’s an item … coming down to the wire, you’ve got to manage this stuff much further in advance now and you’ve got to get it in front of the right people quickly.
Budget uncertainty still poses challenges
It’s not all doom and gloom, though. Federal procurement data show a 28 percent increase, so far this year, in solicitations, leading some industry observers to speculate about a hefty fourth-quarter spending rush.
“It is a difficult time — there’s no way around that — but there are still a lot of opportunities even with the effects of sequestration,” Tinsley said. “So, I don’t think that companies should look at this as a dire situation. It’s just a challenging situation, and we’ve been in these types of situations before. And those contractors that are adept in managing their companies and have good business-development strategies … will be able to survive it.”
With full-year budgets a rarity and stopgap funding measures — and the threat of government shutdowns — increasing, contractors have become more adept at planning for budget uncertainty. But sequestration could topple even the best laid plans.
“What has really been tough for companies like mine has been the inability of managers within the federal government to move money around when you have situations where there’s not a federal budget,” DeWitt said. “Now, when you put budget cuts on top of that, which come through sequestration, that’s a real killer.”