'Fiscal cancer' threatens government market

It is hard to imagine a gloomier outlook for our country than the one presented by the co-chairmen of President Barack Obama’s debt and deficit commission.

They described the situation to the nation’s governors as a “fiscal cancer” that has the potential to destroy the country from within unless tough action is taken.

The government is only taking in enough revenue to cover Medicaid, Medicare and Social Security.

“The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries,” the Washington Post quoted former Republican Sen. Alan Simpson as saying.

“We can’t grow our way out of this,” Erskine Bowles told the National Governor’s Association. Bowles, a former White House chief of staff under President Clinton, and Simpson are co-chairman of the commission.

The commission will make its recommendations to Congress by the end of the year, after the November elections.

Tax increases are unlikely, so the main weapon will be spending cuts, which will mean canceled or severely curtailed programs.

Here are several ways – in no particular order -- that this might affect contractors:

• Slower procurements. Agencies will increase their review of new contracts and task orders before their award. Dedicating funds also will be more difficult.
• Increased oversight. It might be hard to believe this can get more intense, but it will. Be ready to defend your contracts.
• More canceled programs. More oversight will uncover more poor performers, and these will be the easy contracts to cut.
• Less insourcing. Agencies will quickly learn that insourcing will not decrease their costs.
• More fixed-price contracts. What the government needs is a more predictable cost structure, and fixed-priced contracting is a good tool for knowing what you are going to spend.
• Tougher competition. There will be fewer dollars to chase, particularly for new projects, so the battle for those dollars will be intense.

Our recent cover story outlines some of the challenges contractors face. Even if the economy begins to boom, tough times and tough decisions lie ahead.