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By Nick Wakeman

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Uncertainty prevails as market prepares for Trump administration

There are more questions than answers right now about the transition to the Trump administration. But that doesn’t mean you should wait to start preparing and planning.

That was clearly the message of speakers at Deltek’s 2016 FedFocus event.

“This is a huge market shift,” said Kevin Plexico, vice president of research at Deltek.

Plexico set the playing field of where the market is now. Fiscal 2016 saw a 1 percent increase in civilian spending from 2015. That was a slower growth rate than last year, when the civilian market grew by 3 percent from 2014 to 2015.

The data is incomplete for the defense market, but Plexico said that the expectation is that defense spending also grew about 1 percent. That would be good news considering the defense market had been contracting for past several years.

His conclusion is that, overall, the market is flat going into the Trump administration.

So, how will the Trump administration affect federal spending? It might be a while before we really know. There are many political appointments to be made, and the 2018 budget will go to Congress in February. That budget has been developed by the Obama administration and Trump’s team will have barely three weeks to make any changes. So, it might be another year before the Trump administration can have its full impact on the budget when it presents the fiscal 2019 budget to Congress.

Plexico predicted that the lame duck session of Congress likely will only pass a continuing resolution to keep the government funded until the new Congress and President Trump take office in January.

That means that the National Defense Authorization Act and the Modernizing Government Technology Act – the so-called IT modernization act – will not be voted on until the new Congress is in session. But there is bipartisan support for both bills, so passage will likely come quickly.

One of Trump’s campaign pledges was to boost defense spending, which will open up more opportunities for government contractors. Of course, the details on what those specific opportunities are unknown.

Another pledge that might drive opportunities is health care, where Trump and the GOP have promised to unwind the Affordable Care Act, but that is a complicated piece of legislation and will not happen quickly. But health care will be a priority and should create opportunities, Plexico said.

A third area is immigration. Sunday night, on 60 Minutes, Trump said he would immediately deport illegal immigrants who had committed crimes. The number could be as high as 3 million people.

“Do they have the IT systems to support that?” said Deniece Peterson, federal industry analyst for Deltek.

Trump has also talked about extreme vetting for people trying to enter the country. “Are their systems in place to manage that process?” she asked.

Peterson also warned that increased spending in one area might come from shifting dollars from another area.

However he pursues those goals, the expectation is that spending the Homeland Security Department will go up, which will translate into more opportunities for contractors.

Overall, spending is expected to go up with the bulk of the increase coming from defense spending. Spending on the civilian programs likely will go down to a certain degree.

But a complicating factor is the Budget Control Act, which is still in effect and with it the specter of sequestration and automatic cuts still is theoretically possible.

Expectations are that Congress will adjust the BCA and could even lift it entirely for defense spending so that the caps on spending do not apply.

Plexico said he expects the spending limits in the BCA to more of a floor than a ceiling.

Besides spending priorities, Trump also has pledged to pull back what he called “unconstitutional” executive orders signed by President Obama. One to watch for the contracting industry is the Fair Pay and Safe Workplaces executive order, which adds several compliance requirements to government contractors.

Right now, only a few appointments have been made by Trump. The department heads will come first, but the people who will make the real impact on contractors will come a layer or two below, Plexico said.

Peterson also recommended tracking who leaves government in the coming months, not just political appointees but career people as well.

With more than 4,000 appointees, it will be many, many months before all of the appointments are made and put into place.

So, we have uncertainty. I guess the market should be used to that by now.

Posted by Nick Wakeman on Nov 14, 2016 at 1:06 PM

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