2014: Better, worse or more of the same?

Fiscal 2014 was very much on the minds of executives I spoke to last night at the finalist reception for the annual Greater Washington Government Contractor Awards.

The question getting raised is whether 2014 will be better or worse than 2013, or are we in for more of the same, namely, delays and uncertainty.

The consensus I picked up from my conversations last night is that there is no single answer to that question. In some ways, 2014 will be better, in some ways worse, and in many ways the same.

Let’s start with the better.

Government buyers are better prepared for sequestration in 2014 than 2013, particularly at the Defense Department.

Until sequestration hit, agency budget and procurement officials were being told to plan as if it wouldn’t happen, so next to no preparation was done. Then sequestration hit, and it was a mad rush that’s still being felt as the fiscal year winds down.

Now that they have gone through the process once, agencies will be able to more quickly make their sequestration cuts.

One executive related a conversation he had with a DOD official who said that the size of sequestration cuts in 2014 won’t matter. “It can be 10 percent or 20 percent, we’ll know what to do,” he said quoting the official.

Quicker cuts in 2014 are a good thing because it will alleviate some of the uncertainty that plagued 2013 and less uncertainty will give contractors more visibility into where the market is going.

How will it be worse?

A couple things come into play here.

Morale in the government is very low. “As bad as it was for us this year, it was even worse for our customers,” one executive told me.

Low morale is impacting new starts and openness to innovation. Many government officials just want to hit their goals and squeak by. They are tired of getting beaten down at every turn.

It is going to take time for morale to rebound, and another round of sequestration driven cuts will only make it worse.

There are only a few weeks left in fiscal 2013, and there is concern that agencies will not spend their entire budgets. The impact on 2014 is that money not spent is money lost.

In a more normal budget year, you could make the argument that the left over money really wasn’t needed, so it should be taken away. But 2013 was anything but normal, with a final budget not being approved until the fiscal year was nearly six months old, and with sequestration.

Lost 2013 money will be like another budget cut heaped on a year full of cuts.

We also haven’t seen the full impact of some of the delays in 2013, particularly the slowdown in requests for proposals. Few RFPs in 2013 will translate into less revenue in 2014.

An executive also told me that a divide has developed between government program managers and contracting officers, with program managers losing some of their influence over how contracts and task orders are let.

In some cases, program managers aren’t learning about the specifics of a solicitation until it is published on FedBizOpps.

Program managers also are losing access to contractors they want, especially as procurements get reshaped into small business set asides. Some of these contracts are quite large, and it’s a struggle for small businesses to meet all the requirements.

And before you think this is a complaint from a large company, it was an executive with a small business that told me about this.

Where things will be the same?

These are easy to spot:

No budgets passed, a continuing resolution until who knows when, and more delays.

“Moving everything to the right will continue,” an executive said.

The result will be more contract extensions because new awards will not be coming out in a timely fashion, particularly in the first part of the year.

If you are greedy, an extension isn’t a bad thing because margins are higher, an executive said. But that’s not a good way to do business, and isn’t good for industry, particularly as companies try to expand into new markets.

My personal prediction is a little fearful that things will be worse next year.

A best case scenario might be passage of a continuing resolution for the year that meets sequestration goals for 2014. That will at least give some predictability to the year.

But if we get deeply involved in Syria, there will be pressure, and probably should be pressure, to pay for it by making cuts elsewhere.

That will be a real wild card for 2014.

I guess there is no escaping a serious dose of uncertainty for much of the next 12 months. In that case, more of the same probably leans more toward the worse category than the better.