The specter of sequestration is a character test for any company. Here's what leaders should be doing in today's market.
With large budget cuts or even mandated sequestration looming after Jan. 1, the concern among government contractors is strong, indeed palpable.
Unfortunately there are no quick fixes or easy solutions to this daunting problem, nor even clear mileposts of specific developments to watch out for.
This is a time when companies’ leadership and character is truly tested. While there may not be easy or readily apparent solutions, there are several steps companies and their leaders should take.
Have contingency plans
Even though it is unknown which agencies or contracts will be most impacted, companies should assume the worst and plan for it now. Unfortunately, this means expecting to lose current contracts and needing to take steps to reduce the workforce. Contingency plans should address the following questions:
- What discretionary initiatives can be put on hold to reduce expenses, such as capital expansion, marketing campaigns, employee training, etc.?
- How long could your company afford to hold affected employees on the bench before the added cost would adversely affect your rates and cash flow?
- If a workforce reduction is required, how will you determine the employees that will be affected? The simple answer of laying off those employees affected by a contract reduction may not be feasible if they are your star performers in the broader sense. Laying off employees not affected by a contract reduction may pose problems around key personnel restrictions or even employee discrimination concerns. Be sure to involve your human resources management in these discussions.
- Will you provide your departing employees with any termination benefits?
- How will you combat the negative impact to the morale of your workforce?
Continue providing excellent service and doing the business basics
Contractors need to continue excellent service on all contracts. Related to this, it is also important to make sure that all financial and compliance controls are in place and working effectively so there are no doubts that the contractor has been a good steward of taxpayer funds.
Be ready to communicate
At the proper time, company management will need to articulate its business strategy and structure, whether the worst feared outcome occurs or the crisis seems to pass. Key audiences to address include employees, customers, and investors.
Government contractors everywhere need to emphasize the value of their services to their congressmen and senators. Companies should work closely with industry organizations such as the Professional Services Council (www.pscouncil.org), especially during this critical time.
PSC is solely focused on preserving, improving, and expanding the federal government market for its more than 330 members. When it comes to government procurement, it is the industry’s most respected voice and leader on legislative and regulatory policy.
Recognize and anticipate investor uncertainty
The investment community also does not have a crystal ball for predicting what will happen. Investment decisions today are often postponed if not frozen, in sharp contrast to the environment of a few years ago. This makes astute financial management within companies more important than ever.
Assess small-business opportunities
While there is pressure to cut federal spending, there is also pressure to award more contracts to small businesses. The U.S. government has a goal of 23 percent of prime contracts going to small businesses. In fiscal 2011, only 21.7 percent of these contracts went to small businesses, a significant decline from 22.7 percent the year before. With political pressures likely to rise to help out small businesses, there should be at least some added opportunity for this sector.
Stay vigilant and monitor all aspects of contract performance
Government contractors are in uncharted waters. It is imperative to pay attention to shifting currents and maintain close interaction with customers throughout this process.
This includes having the best processes and procedures to facilitate compliance with unique contract requirements, document control and record keeping. In addition, meeting reporting requirements and thoroughly managing subcontractors continue to be extremely important, as do understanding agreements, deadlines and deliverables.
In the future, it will be important to keep perspective and stay optimistic. The federal government contracting marketplace is enormous. The barriers to entry, especially for specialized and technical services, can also be quite high.
These factors, and the specific valuable services and solid business relationships that contractors have built with customers, should continue to be the basis for service excellence and even optimism at this very difficult time.
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