Fiscal Cliff Averted? What’s the Real Fallout for Government Contractors?

President Obama just signed into law a bill averting the much discussed fiscal cliff.  So we can all breathe a sigh of relief and get back to work as government contractors, right?  Well, yes and no.  First, the “no” side of the equation.  Though bypassing a looming crisis, Congress postponed dealing with some of the key issues that spawned all this fiscal cliff stuff in the first place.  Our leaders deferred the $1.2 trillion in spending cuts (known as “sequestration”) for two months.  Further, they didn’t raise the debt ceiling even though the Treasury technically hit the $16.4 trillion limit Monday.  These things we’ll need to be addressed just about the time the continuing budget resolution runs out and a new budget battle will be underway.  Looks like more fireworks are in our future.

Now the “yes, we can get back to work” side of the equation.  While an environment of uncertainty such as has been created by the fiscal cliff battle can certainly have a negative impact on programs, I can assure you the federal government isn’t going away anytime soon.   It will still buy billions of dollars worth of stuff every day–hopefully some of it from you.  The main point: uncertainty is nothing new to experienced contractors.  There is always a cloud of precariousness hanging over government contractors:  funding battles, continuing resolutions, political turnover, contract expirations, bid protests, etc.  All of these serve to make government markets a bit rocky.  It’s something you deal with and navigate, meanwhile being thankful for the good characteristics like long-term contracts, and a customer that pays religiously.

So, amidst all the turmoil and uncertainty, just do what you do best.  Build relationships, solve problems, create value.  Do it well and you’ll build bridges across this and any future “cliffs” that may lie ahead.

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President Obama Proposes Merging Agencies and Elevating SBA Head to Cabinet Position

Seal of the U.S. government's Small Business A...

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Today, President Obama proposed merging six trade and commerce agencies into a single agency, while elevating the head of the Small Business Administration to a cabinet level position.  The plans would affect the Commerce Department, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation and the Trade and Development Agency, according to an article in the Wall Street Journal.

The president can’t make the change on his own, so he will ask Congress for authority to undertake the reorganization quickly.

According to the Journal article, “the president appears to be seeking to show that he is looking out for a part of the business sector that Republicans say is the main engine of job growth, and one that other Obama policies have hurt.”

At this point it is unclear whether Congress will give President Obama what he seeks. Reorganizations are tricky in Congress because they impact certain committees’ oversight structure.  At least, however, discussion and focus are being placed on Small Business–a key engine for economic growth.

New Report Reveals Trends in Federal Contracting for Small Business

Despite, current procurement tracking methods at the federal level, it’s not easy to get a real picture of how small business fares within government contracting.  However, a new report, Trends in Federal Contracting for Small Businesses, published by American Express OPEN’s Victory in Procurement (VIP) program provides some unique and interesting insights.  For this study, 740 “active small business federal contractors” were polled during the months of October and November.  Here are a few key findings from the first of four publicly-released summary reports:

  • Small businesses spent more chasing federal contracts. Over the past year, the amount of time and money that active small business contractors have invested in seeking federal contracts averaged $103,827, an increase of 21 percent over previous year figures.
  • Small businesses bid less frequently on contracts. Even as the average investment has risen over the past year, bidding activity has declined by nearly half.  This includes both prime and subcontracting bidding activity. In addition, the average success rate for small business contractors (in both prime and subcontracting) has declined, indicating a more competitive environment.
  • Try, and try again. Active small business contractors reported they had to submit an average of 4.4 bids before they won their first prime federal contract. Two-thirds of active small business contractors have performed on more than one federal contract, and, on average, it took them just under a year to win their second contract.
  • Experience pays. Contractors with ten or more years experience have success rates of 53% on average.  This compares to contractors with three or less years experience who have success rates of 20% on average.

Overall, the study highlights the fact that government contracting is not an easy, short-term strategy for small business.  It takes commitment, work, and investment to succeed.  On the other hand, for small businesses who know what they’re doing and/or are willing to make the effort, it is also clear government contracting can be a smart, highly lucrative pursuit.

New Labor Rule Requires Winning Contractor to Offer Jobs to Incumbent Contractor’s Employees

Just snatch a new federal services contract away from a competitor?  A new Department of Labor rule says you will have to offer your competitor’s employees a job prior to hiring workers elsewhere.  According to an article in Washington Technology, Labor Department officials have released a new policy mandating that federal service contracts require winning contractors to offer positions to the previous contractor’s employees (whose jobs would end as a result of the new award).  Essentially, incumbent employees will have a right of first refusal for employment.

The thought behind the rule is such a policy would make the transition between contract awards smoother for the government.  However, comments to the ruling offer troubling questions such as:

  • What if the previous contractor lost because of poor performance in general?
  • What if the employee is not up to standard?  Does sufficient documentation exist to determine poor individual employee performance?
  • If I’m a losing contractor, do I really want my employees easily whisked away (taking my company secrets)?
  • How do winning contractors fulfill the cost and quality obligations?
In the article, Stan Soloway, president and CEO of the council, indicated the rule is inappropriate and even counterintuitive.
“While experience shows that companies often hire as many qualified incumbents as possible to avoid the costs of training new employees, this rule denies those companies, who have full responsibility for performance under the contract, their ability to select a workforce they believe is best suited to meeting the contract requirements,” Soloway said.

The official date of when the rule will take effect has not been released, but will be published in a subsequent notice once the starting date has been decided.

What to Do About Contracting Delays and the End of the Fiscal Year

If you sell to the federal government, you’re entering the last month of its fiscal year.  Statistics show September has two times the number of contract awards on average more than other months.  Yet, it appears this year, contract delays will be high, and for many of you, September may not be a strong finish.  In an article in Washington Technology, Dawn Jordan provides some statistics originally produced by Input on the current state of contracting as we finish up the fiscal year:

  • In year-over-year comparisons, the number of awards for each of the first six months in 2011 was down versus the same month every year dating back to 2005.
  • Using the total number of awards made in 2010 as a guide; in the first six months in 2011, 30 percent of awards had been made.
  • Both the civilian and defense sectors have slowed but the greater impact has been on defense.
  • In each of the past three years, over 80 percent of the RFPs issued were awarded in 12 months. Based on the first half of 2011, it appears the percentage of RFPs awarded within 12 months will be closer to 65 percent.

There are a variety of reasons behind this.  Contracting staffs appear to be smaller.  The whole budget debate and continuing resolution process seems to have had a significant impact.  And the number of protests have increased over the last few years, causing award delays.

So what is a contractor to do during times like these?

Pedal to the Metal

First, don’t let off the gas with existing prospects.  You have to keep pushing forward, building relationships and highlighting customer value.  Know what is happening in procurement and where your deal stands.  In many cases, the procurement process will eventually unstick and you’ll be ready to move rapidly.

Build a Pipeline

Second, now is a great time to pursue new prospect relationships and build your pipeline.  While you’re visiting a current prospect (and hearing about yet another delay), ask who tin other agencies or departments might also benefit from having a problem solved.  Sometimes, it just takes asking.

Make New Friends

Third, while we’re thinking about relationships, now is a good time to build relationships with current/potential partners.  Government selling is all about teaming, and finding the right partner can make the difference between success and failure.  Too many times, contractors don’t have partners on their radar until they are scrambling to plug a hole in an RFP response.  Build relationships before you’re under the pressure of a proposal deadline.

The last month of the year can be a frustrating, but exhilarating time of the year.  This year, don’t let contract delays and budget wranglings get you down.  Build for the future.

Cybersecurity: Top Government Priority for 2011

According to an article in NextGov, cybersecurity will be a top government priority in 2011.  According to GOP aides, cybersecurity will be a strong focus, but it is unclear when legislation to update outdated cyberspace laws will be enacted.

Details may come out when Mac Thornberry (R-Texas), the new vice chairman of the Armed Services Committee, speaks early in the next Congress.  According to the article, on Dec. 15, Speaker-designate John Boehner (R-Ohio) asked Thornberry “to lead an initiative on cybersecurity that cuts across committee lines.”

From the article:

Jim Langevin, D-R.I., co-chairman of the House Cybersecurity Caucus, expressed disappointment when lawmakers removed the federal cyber provisions from the defense policy bill and said he will push for passage in 2011.

“Our government is under attack every single day in cyberspace, yet we lack the coordination and strategy to properly defend ourselves or operate efficiently online,” he said. “While there are many important provisions for the Department of Defense cyber efforts in this bill, the DoD already has the assets to begin addressing this crisis. The real challenges lie in securing our federal networks and developing a real comprehensive policy for addressing transnational threats as well as engaging international partners.”

For a list of top security threats being faced by the government, check out our prior post here.

New Telework Law May Mean Opportunity for Contractors

Today, President Obama signed into law a bill aimed at increasing the amount of telework in the federal government. Under the 2010 Telework Enhancement Act, federal agencies will have 180 days to:
1) establish a policy on working outside the office
2) identify eligible employees
3) inform them of the option to work from home.

The new law also requires agencies to appoint an internal official to manage telework initiatives, and incorporate the policy into the agency’s continuity of operations plans.

OPPORTUNITY WATCH:
What does this mean for government contractors? While a full understanding of the law’s implications will take time to develop, the government’s reliance on technology will clearly increase–a potential opportunity for vendors. Telephone and video conferencing tools, collaboration applications, cloud computing, mobile applications, etc. will all find new homes within the federal government. And, while these technologies are currently alive and well in the commercial world, concerns around classified information, security breaches, etc. (more acute within the government), will create demand for new advances in cybersecurity, network monitoring, encryption, and the like. Innovative technology contractors able to respond to this upcoming shift in thinking just may find a lucrative market segment in government teleworking.