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By Nick Wakeman

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Nick Wakeman

Budget impasse puts the hurt on contractors

Forget about bracing for the impact of sequestration; contractors are already feeling the pain of the budget impasse on Capitol Hill.

A new study by Centurion Research found that contractors are taking hits to revenue and new business opportunities.

Participants in the survey also told Centurion that they are seeing fewer requests for proposals and experiencing delays in contract awards.

In other words, the pain has already started, and I guess anyone reading this is already feeling it, but perhaps there is some comfort in knowing you aren’t alone.

When the survey asked what contractors see for 2013, the bleakness continues:

  • 83 percent see a moderate to significant impact to revenue
  • 88 percent see a moderate to significant impact on new program starts.
  • 89 percent see moderate to significant impact to award schedules

The picture isn’t any brighter when the survey questions focused on what contractors see as the impact on their customers.

  • 90 percent expect moderate to significant delays in RFP releases
  • 66 percent see a moderate to significant impact on the willingness of customers to talk to contractors
  • 75 percent see a moderate to significant impact on agency morale

Interestingly, when Centurion asked about companies' willingness to invest in new business initiatives, only 17 percent said there would be no new investments. Minor investments are expected by 30 percent of the respondents, 42 percent expect some investment, while 11 percent expect significant investment.

The survey also asked about strategic plans, and 50 percent said they were focusing on agencies with more secure budgets, such as intelligence agencies, Veterans Affairs and NIH.

Another 36.9 percent said they were staying the course, and were not planning significant changes in their plans or focus.

Increasing merger and acquisition activities is a priority for 24.6 percent of the respondents.

Perhaps a bit chilling is the finding that 30.7 percent are rethinking their entire strategy.

I can’t argue with Centurion’s conclusion that the federal market is in the middle of a major transition. I think the transition would take place whether or not we were experiencing a budget impasse.

But that impasse takes an already difficult budget environment, and heaps on uncertainty and a manufactured crisis that no seems to be able to solve.

My optimistic side stays focused on the day we do solve sequestration and have a longer term view of the budget. Even with cuts, the stability and visibility into where the government is spending could spark a bit of a business boom, as hard as that is to imagine right now.

Posted by Nick Wakeman on Feb 07, 2013 at 9:48 AM

Reader Comments

Fri, Feb 8, 2013 Another Impact DC

Another impact is that the govt. is able to harvest talent from the private sector in a way it hasn't for quite a while. This improves the caliber of Federal employees, and likely causes less dependency on contractors. It appears some agencies are also highlighting the demarcation between federal and contractor employees a bit more than before. Don't know if this being pushed as a contractual or regulatory requirement. Might not be related, seems though the antipathy towards contractors might being made a bit more visible.

Fri, Feb 8, 2013 Mike Parkinson Washington, DC

I just met with a client who won a large government contract in 2012. Due to the economic environment the contract award value went down in scope of work and value 75% for the foreseeable future. Think about the ripple effect on all those involved.

Fri, Feb 8, 2013 SPMayor Summit Point, WV

Solviing sequestration is only the beginning of a longer journey to re-prioritizing our 'got to haves' and our 'would like to haves'. I am not surprised that firms are reconsidering their strategies in the Federal space. It one longer is what it was and will likely never be the same. Contrary to the Government's narcisstic view of itself as a large and desirable client, Government is no longer the client of preference with firms readily leaving or refusing to enter the space with all its uncertainties and risks.

Fri, Feb 8, 2013 Vanla Alexandria, VA

We have seen lengthy delays in contract awards for O&M contracts. We are seeing many RFPs being cancelled or significantly delayed. The Government already insourced many of our employees who had been with our company for many years. Many contracts are competed with very small businesses who really don't understand the requirements or simply don't have the infrastructure or knowledge to execute contracts well. We have lost about 60% of our business in the DC area alone. And when you go down in revenue, it still takes a three year average in revenue to become a small business again. Anyone who thinks businesses with revenues of slightly over $25.5M makes you able to compete with the Northrops or Lockheeds of the Industry. The mid sized companies are really taking the brunt of this downturn.

Fri, Feb 8, 2013 Don George Herndon

You will find this news letter interesting!

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