What's your biggest worry as the fiscal year ends?
Each year when I conduct the Top 100 webinar, there are always more questions than I have time to answer. And frankly, there are a lot of questions I don’t have an answer for.
But when I look at those questions – I got a full download of the questions this year – I get a good sense of what’s on people’s minds and what some of the big worries are as we move into the last few months of the fiscal year.
If I had to put these questions into buckets I would have four:
- Future opportunities
- Small business
- Mid-tier squeeze
- Impact of the Afghanistan drawdown
In the future opportunities category, one of the best questions had to do with the fourth quarter of the fiscal year. Traditionally, the fourth quarter is the busiest of the year as agencies rush to empty their coffers. It’s a use or lose world.
Click here to see the entire webinar on the 2013 Top 100.
While the expectation is that this fourth quarter will be busier than the first three quarters, the questioner asked if the fourth quarter will be as strong as has been the tradition.
“Will customers hold money given their concern about sequestration?” he asked.
I’ve wondered the same thing. One factor that plays into a busy fourth quarter is that the 2013 budget was finalized so late, so there have been delays. We’ve seen the pick up in the volume of awards each month in the contract announcements we’ve covered.
So, the late start would tend to point to a busy fourth quarter, but the late budget also means that agencies were delayed in determining their sequestration cuts.
We could see both things happening at the same time –some parts of agencies rushing to spend their budgets, while other parts will be slower because they have to account for sequestration.
We’ll probably only know what really happened when we look at back at the fourth quarter.
Sequestration was a theme in some of the small business questions that came in. This is an area where things just aren’t very clear. Small businesses have some protection from sequestration because of the set aside goals agencies and large primes must meet.
But at the same time, contracts continue to get consolidated into ever larger procurements. More agencies are using multiple award contracts as their vehicle of choice. And as budgets tighten larger businesses are moving downstream to chase smaller pieces of business.
Sequestration is a large complicating factor in the market for small businesses.
The mid-tier also gets caught in this squeeze as well and continues to feel a lot of pressure.
One questioner wanted to know if there would be any modifications to the NAICS codes that determine whether you are a small business or not. This move could help the mid-tier because they could stay in small business categories longer. But there are a lot of mid-tier companies that are too large to feel an impact from this kind of change.
An executive recently described the mid-tier as companies in the $300 million to $2 billion range. Adjustments to NAICS codes won’t matter to these folks.
As for the drawdown in Afghanistan, this is definitely where I have little expertise, but the sense I got from the questions was that companies are very concerned about the pace of the reduction of overseas contingency operations.
One area that I want us to dive deeper into this summer is what the shift in defense strategy to the Asia Pacific means in terms of opportunities.
A lot is already underway, particularly on the mergers and acquisitions side where large defense companies such as Lockheed Martin and Northrop Grumman have made acquisitions to increase their presence in the region.
The biggest concern I see going forward is that we are likely headed for the same market environment we saw at the end of 2012 and early 2013 – lots of uncertainty and lots of delays because budgets will not be finalized.
The last few months have been somewhat of a reprieve from that uncertainty but unless there is an outbreak of bipartisanship on Capitol Hill sometime in the next couple months, we better brace ourselves.
Posted by Nick Wakeman on Jul 11, 2013 at 1:20 PM