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By Nick Wakeman

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Nick Wakeman

'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. 

Posted by Nick Wakeman on Jul 12, 2010 at 9:43 AM

Reader Comments

Thu, Jul 15, 2010

Talk about a miracle, we need a cheap breakthrough in solving cancer, alzheimers and coronary disease. Anything to get our runaway medical costs under control.

Tue, Jul 13, 2010 Observer V DC Metro

There’s a brighter or different side to all your points: “Increased review” of new contracts and tasks? That could preclude some defective requirements. More intense oversight? It is still thin or absent in the majority of contracts and tasks – read almost any audit report on failed contracts. Canceled programs? Some of them are plainly wasteful, no matter how well performed. This can save money for what adds value. More insourcing? It will always appear cost-saving because of the way the government budgets but agencies never can keep the savings and don’t justify programs that way. The government does need “a more predictable cost structure,” sure, but here’s another way to say it: the government needs programs and contractors that stay on budget. Over-runs have literally become the standard. Tougher competition—contractors surely agree that competition brings down costs and margins that are unsightly to some government eyes, from the president on down. And, it will squeeze the inefficient firms, but it will also pressure small business, which is not the current policy.

Tue, Jul 13, 2010 David Fairfax

The government should start cuts with one basic idea: Federal Worker Perfomance reviews with pay and/or employment consequences. I have been working as a contractor with the Federal Governemnt for over twenty years, and I can safely say that at least 25% of Federal Workers could be eliminated from Government payrolls without any impact to the work that is performed. The problem with Governemnt is that it is considered lifetime employment. You cannot get fired for poor performance in most positions. The joke is that those that underperform are in some cases promoted just to get them out of positions where they hinder progress. If Federal workers were expected to perform and suffer the same employment consequences as those in the private sector, you could cut the payroll budget by at least 25%. Sad but true.

Tue, Jul 13, 2010

The administration is emphasizing that IT is a way to increase efficiencies and reduce the costs of operating the government. Good that they are pressing greater oversight and accountability on these programs. How many multi-million dollar systems have have we seen get cut after years of failed development, projects over budget and behind schedule?

Tue, Jul 13, 2010

Ah, yes, the Wall Street billionaires who want to put Feds on minimum wage and Grandma on cat food rather than see their taxes go up: http://www.ourfuture.org/blog-entry/2009114613/its-baack-catfood-commission

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