This is a 3 part series covering (1) The State of the Federal Market, (2) Is Now the Time to Get a GSA Contract? and (3) Survive and Thrive in this New Federal Market. All Posts are addressed to Government Contractors.
It is as good a time as ever to evaluate the federal environment and draw some conclusions on the effects of the sequester. Many other factors come into play when considering the Federal Market from the perspective of a Government Contractor. Every Industry will be effected differently, because some are ripe for cuts and others are seen as efficiency-boosters and cost-savers. Also, the Acquisition methods used by federal buyers will be effected by the upcoming budget cuts, and we will take a look at that.
Sequestration Aftermath in the Federal Market
Congress and the federal Acquisition community are still sorting through the sequestration. Some are preparing for it and others are still fighting it. The sequester cuts discretionary spending across-the-board by $109.3 billion a year from 2014-2021 and $85.4 billion in 2013. Here is a breakdown of the $85.4 billion in cuts for 2013:
- $42.7 billion in defense cuts (a 7.9 percent cut).
- $28.7 billion in domestic discretionary cuts (a 5.3 percent cut).
- $9.9 billion in Medicare cuts (a 2 percent cut).
- $4 billion in other mandatory cuts (a 5.8 percent cut to nondefense programs, and a 7.8 percent cut to mandatory defense programs).
So, you can see that the cuts effect the defense budget, as well as other Agencies and their programs. The most scrutiny initially has been drawn to the the estimated 700,000 contracted workforce within the military, as well as the civilian workforce. However, the sequestration is expected to impact hundreds-of-thousands (and even millions) of jobs throughout the country. This includes jobs from DoD, other impacted Agencies, and Government Contractors.
The Future of Federal Acquisition
This may seem like doom-and-gloom, but how will the sequestration effect the future of Federal Acquisition? Small purchases will likely not change much, other than they will go down in number. We have already seen smaller purchases dropping in dollar volume and number in many categories over the past 3 years (case in point – GSA Advantage Sales). However, there are products/services that are vital (office supplies, hardware, IT support, computers, medical supplies, etc.) that will likely only decline modestly (at the rate the workforce declines). And on the flip-side, there are products/services seen as more of a luxury than a necessity (construction services, facility maintenance, research engineering, promotional products, etc.).
With large contracts, many believe that contract sizes will be chopped into more bite-sized amounts, allowing the buyer to eliminate non-vital aspects of the purchase. Others see Integrated Contracts as the solution, pulling together several exclusive Contractors to offer a whole solution with cost savings in tight negotiation of discounts due to the promising volume of these contracts. In the end, we will probably see both approaches used according to where they apply best.
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During the Gold Rush the ones who profited most were the shovel makers. My point is that some Government Contractors will come along-side federal buyers and win large contractors to assist in cost-saving endeavors. I am talking about training, financial management, auditing, business management consulting, etc. This will be a competitive environment, but one worth pursuing. Another insight I can provide is that green purchasing is still hot, and if all else is equal, the greenest solution will stand out.