Are we headed for more budget uncertainty?

Contractors have enjoyed more market clarity in 2014, a welcomed relief after a rough 2013, but sequestration is still a threat, and some industry experts see it as a real possibility.

The panel at Washington Technology’s Contractors & Cocktails event on Tuesday addressed the pros and the cons of the recent elections and what risks contractors face because of the election results.

“For contractors, this election was good enough on one result alone: Claire McCaskill no longer chairs the subcommittee of financial and contracting oversight,” said John Hillen, executive in residence and professor of practice, George Mason University School of Management.

But the elections do not erase the threats that industry faces. “All the mechanics that have led to sequestration are still in place,” Hillen said.

Stan Soloway, president and CEO of the Professional Services Council, agreed. “We’re rolling right back into the debate we had a year and a half ago,” Soloway said. “From a market perspective, I think we’re right back to some of the same uncertainties.”

The good news is that the threat of defense cuts are minimal, and it is not necessarily a bad market to be in; “You’ve got ISIS beheadings on television, Iran and North Korea, oil prices, you’ve got an increasingly assertive China,” said Jason Kaufman, principal at The Chertoff Group, and those factors are causing Democrats to have little appetite for cuts in defense spending.

“We’ve seen in the last two years that for most agencies, the rate of spend on contracts is tied much less to the volume of dollars that they get than it is to the clarity or the confidence they have they’re going to get money,” Soloway said.

With defense cuts largely absent from the debate, the experts said, defense is not as bad of an area to be in as it used to be.

However, the fight over immigration reform is still an issue, and while unlikely, a government shutdown might be something the contracting community might have to deal with in a few months.

Most of the issues that both the lame duck session of Congress and the new Congress will face revolve around passage of a budget for fiscal 2015 and fiscal 2016. The fight over immigration reform, which President Obama is pursuing via executive order, will influence the budget debate, with the Republicans using their opposition to the president's immigration reform plan as a lever for passing the budget.

In addition to passing a 2015 budget, the debt limit ceiling likely will come into play in the March time frame, which will create another opportunity for partisan bickering.

At the very least, there is a real possibility that the market will return to a period of heightened uncertainty around budgets and funding early in 2015, the panelists said. 

About the Author

Mark Hoover is a senior staff writer with Washington Technology. You can contact him at mhoover@washingtontechnology.com, or connect with him on Twitter at @mhooverWT.

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