Tom Davis offers warnings and hope for government contractors

The government is broke and two-thirds of the federal budget is “on autopilot” and can’t be touched. Nevertheless, all is not doom and gloom for the government contracting community, former Congressman Tom Davis (R-Va.) said.

“Something’s got to give,” he said, adding that “there is some good news” for contractors despite the current uncertain climate.

Davis, now with Deloitte & Touche, told a gathering of government contractors at a Microsoft public sector event today that they face challenges that differ from those in the past: There is less federal money for contracts, the government is operating under continuing resolutions (CRs) that could lead to a shutdown, federal government unions are attacking outsourcing, and contractors continue to be a scapegoat for the fiscal ills of government, he said.

But the “sweet spot” for contractors is that government outsourcing of R&D and the need for innovative IT solutions will only increase.

“The private sector will continue to provide the solutions,” he said. “The bottom line is at the end of the day we need contractors.”

Referring to Defense Secretary Robert Gates’ proposed 10 percent cut in Defense Department contract spending, Davis said the cuts mostly will come by reducing the number of contract workers.

So companies that specialize in staffing augmentation and personnel administration “need to start looking around and maybe figuring out what else you can do because those are the areas that are going to get hit the hardest.”

He said cost savings and innovative solutions will drive the industry.

“At the end of the day when [agencies] need solutions they are going to look to the private sector because that’s basically where the innovative solutions are,” Davis said. “If that’s the work you do, I think there’s going to be plenty of opportunity, particularly in cost-cutting because government is going to have to provide more with less.”

Davis called CRs “the worst thing for government contractors” because agencies will protect their workforce first. When they are forced to conserve their dollars they often turn to cancelling a procurement or option year of a contract.

Even if the current CR stalemate is resolved by the April 8 deadline, half the fiscal year will be gone.

The problem is exacerbated, he said, by his House Republican colleagues who “are having trouble managing their own members on this issue because you’ve got the Tea Party people that want to take the government down even further in terms of spending [and] you’ve got Democrats sitting over there licking their chops for a fight.”

Both parties include constituencies that won’t compromise, so a government shutdown is possible but not likely, Davis said.

He predicted that both sides will reach a deal and there will be no need for another short-term CR.

But Davis pointed out that time is of the essence because next week Congress won’t be in session and President Barack Obama will be visiting Latin America.

When they return they also will be facing the looming battle over raising the federal debt ceiling, “which will be a really, really ugly one,” he said.

Looking beyond those battles, Davis said government is going to become more cost-driven and will look to the contracting community to provide efficiencies perhaps through cooperative purchasing and contracts that set payments based on the money they save.

“You can only beat up the contractors for so long before you really find out you need them and can’t function without them,” he said.

Nevertheless, he told contractors that they are operating in a tough environment stoked by voter anger at both parties and a price-conscious government.

“You need to go back and make sure you get your ethics program in place. A mistake is very costly not just to your reputation but also to your bottom line,” Davis said, raising the specter of possible disbarments. “In times like this you’re a mistake away sometimes from putting a big hole in your budget,” he said.

“In this environment historically and traditionally, prices get to play a larger role than it may look like on the RFP,” he said and added that he does not believe competitive sourcing is coming back any time soon.

“That’s a bridge too far politically,” Davis said, “given everything else that’s going on.”