Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWin IQ.
Following President Obama signing the “Sequestration Transparency Act” (H.R. 5872) last month, the Office of Management and Budget (OMB) is due to provide sequestration specifics in a report to Congress by September 6, 2012. The report is due to list every program and activity across the federal government that will be subject to funding cuts. With the end of the current fiscal year approaching, agencies and contractors are eager for any additional insight into what next year may have in store.
The full extent of the details that will be provided by the report are unclear. In particular, whether the amounts needed to be sequestered will be included remains in question. According to a congressional report from July 2012, the report is to include, for discretionary spending, “sequestration percentages and amounts necessary to achieve the required reduction of sequestrable budgetary resources and resulting reductions at the program, project and activity level.” According to a Report of the Committee on the Budget from July (Report 112-577 [PDF]), “those percentages must be calculated relative to any enacted regular appropriation bills for fiscal year 2013. For spending that has not been funded through regular appropriation bills but rather through a continuing resolution, the levels must be identified at a rate of operations as provided in appropriation Acts for fiscal year 2012. For direct spending, the report must include an estimate for the functions based on current law of the sequestration percentages and the amount necessary to achieve the required reduction; and an identification of the reductions required for each nonexempt direct spending account at the program, project and activity level.”
According to a sequestration update from OMB released last month, appropriations for 2013 exceed the levels set by the Budget Control Act. And as government and industry await the details of the report, plans are already underway for further strategic discussions. U.S. aerospace and defense contractors are scheduling to meet with the Defense Department to discuss the impact of sequestration cuts on September 18, 2012. Though Defense has dominated much of the discussion about the impact of the cuts, the non-security side of the situation has benefited from some additional insight into the effects. A letter released from the Department of Health and Human Services outlines reductions to assistance programs and grant funding.
Increased budget pressure has fuelled shifts in the government contracting landscape. As companies look to secure a competitive advantage moving forward, corporate strategies and structures are adapting to a new environment. Several recent comments from industry leadership have speculated about the consolidation of small to mid-size government contractors. One key with balancing consolidations will be to offer resilience against budget uncertainties and contracting challenges without assuming unmanageable overhead costs. Reducing operational margins may lead to divestitures and spin offs of segments at larger contractors.
Some consider the request for additional details about sequestration a stall tactic. Legislators are eager to escape blame for being unable to agree to terms for a budget that would reduce government spending to meet required levels. And lawmakers will still have until January 2, 2013 to pass a bill to eliminate $1.2 trillion from the federal deficit. Meanwhile, agency officials and industry leaders are hoping for the best and planning for the worst.