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Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
Now What? Federal Market Outlook After the March Budget Madness
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Now What? Federal Market Outlook After the March Budget Madness

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Brian Friel and Kevin Brancato, senior analysts with Bloomberg Government, break down the impact that sequestration and looming budget cuts will have on federal agencies and the contracting …

Brian Friel and Kevin Brancato, senior analysts with Bloomberg Government, break down the impact that sequestration and looming budget cuts will have on federal agencies and the contracting industry.

This presentation was originally given at Achieve 2013, Privia's annual user's conference, on February 20, 2013. It has been reproduced with permission from Bloomberg Government. Get more on the federal market at http://www.bgov.com.

Published in: Economy & Finance
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  • 1. CONTRACTING AND MARCH BUDGET MADNESSNow What?Federal Market Outlook AfterMarch Budget Madness » BRIAN FRIEL Federal Business Intelligence Analyst // KEVIN BRANCATO Senior Defense Analyst PRIVIA ACHIEVE 2013 FEBRUARY 20, 2013
  • 2. SEQUESTRATION OVERVIEW 1 Budget Control Act of 2011, as amended, mandates sequestration on March 1, 2013, lowers spending caps for fiscal 2014-2021 to achieve $1.2 trillion in overall savings. CONTRACTING AND MARCH BUDGET MADNESSBackground Continuing resolution funding government operations expires March 27, 2013, same day as defense-only second sequestration set to hit. Bloomberg Government estimates $85 billion in annualized March 1 cuts split between defense and nondefense » Defense = $42.7 billion/7.3 percent, mostly discretionary » Nondefense discretionary = $27.4 billion/5.3 percent » Nondefense mandatory = $15.4 billion, percentage varies » Additional $12 billion defense-only cut occurs March 27. Impact Impact on specific programs is difficult to determine // » Law says every “program, project and activity” must be cut equally; neither law nor Congress clearly defines “PPA” » OMB may allow some discretion in how cuts are applied Contractors should prepare for cuts » Cuts to future contracting opportunities; modifications or cancellations of existing contracts
  • 3. SEQUESTRATION ESTIMATES 2Contractors to Take $30.8 Billion Sequester Cut: BGOV Insight » http://www.bgov.com/news_item/Z-oN793yKThmWks5X_RaeA CONTRACTING AND MARCH BUDGET MADNESS Agency Agency Agency Contract Sequester Sequester DiscretionaryDepartment Sequester Percentage (Incl. Mandatory) SequesterDefense $23,148 7.3% $40,863 $40,827Energy $1,657 6.5% $1,791 $1,775HHS $1,036 5.3% $15,838 $4,316 ADDITIONAL BGOV SEQUESTERATIONDHS $853 5.4% $3,325 $3,059 RESEARCHNASA $823 5.3% $949 $949 » Nine Federal ProgramsDOT $508 5.3% $2,129 $1,748 Face Budget ChoppingState $481 5.3% $1,687 $1,685 BlockJustice $355 5.6% $1,708 $1,557 http://www.bgov.com/neTreasury $335 5.3% $1,243 $759 ws_item/lQfE9nnVck-Agriculture $289 5.3% $2,018 $1,281 pHRNyfd_M-AInt’l assistance $279 5.3% $1,298 $1,291programs » Defense Contracts Plunged 67% inCommerce $250 5.3% $616 $603 January as U.S. CutsInterior $171 5.3% $923 $684 // LoomedLabor $123 5.3% $1,510 $671 http://www.bgov.com/neHUD $133 5.3% $3,206 $3,206 ws_item/qjVGrZtCF1nbEPA $89 5.3% $498 $496 pKqIWKjrTwEducation $73 5.3% $2,613 $2,417SSA $46 5.3% $304 $304NSF $24 5.3% $382 $377Judicial branch $23 5.3% $362 $348
  • 4. HOW DOD MIGHT MANAGE O&M SEQUESTER 3DOD wants to treat O&M O&M Account CONTRACTING AND MARCH BUDGET MADNESSdifferently from acquisitionaccounts Training and Education » Defining PPA as entire account » Would allow for more discretion to trim spending by Land Forces different percentages within accounts » OMB or Congress could object to DOD’s interpretation and selective cutting Recruiting, Advertising and Examining //
  • 5. SEQUESTRATION OUTLOOK 4Scenario 1: March short-term deal » Negotiators use sequestration effects to drive deal to replace or put off this year’s sequestration cuts POST-ELECTION SEQUESTRATION OUTLOOK » Sets funding levels for rest of this fiscal year. Leaves further battles for fiscal 2014 appropriations process.Scenario 2: No short-term deal, sequester proceeds per current law, no sign oflong-term dealScenario 3: Long-term deal begins to take shape in March » Negotiators buy two-month delay of sequester with $24 billion in replacement or delayed cuts. » Budget process used to work out details of trillion-dollar deal. //Most likely outcome: » Sequester begins » Need to deal with continuing resolution forces action by March 27. » Snowballing effects of sequester require short-term fixes » Budget battles continue through at least fiscal 2014 appropriations cycle.
  • 6. MARKET OUTLOOK 5 CONTRACTING AND MARCH BUDGET MADNESS Federal contract spending (2011 constant dollars)Sequestration could $600cut $30 billion from Billionscontracts in fiscal2013. $500Market could settle $400over next few years at$450 billion to $500billion. $300War drawdownbiggest factor. $200Across-the-board dips // $100as agencies issuefewer, smaller, shortercontracts. $0 1988 1994 1984 1985 1986 1987 1989 1990 1991 1992 1993 1995 1996 1997 1998 1999 2000 2001 2002 2003* 2004 2005 2006 2007 2008 2009 2010 2011 2012Policy drivesprocurement.
  • 7. MARKET OUTLOOK 6 IT Services Spending at the VA Dollars in millions by fiscal year T4 Other Contracts CONTRACTING AND MARCH BUDGET MADNESS $1,800Fewer contracts as agenciesrethink acquisition strategies $1,200and consolidate work. 30% on T4 $600 $0 2011 2012 Average Length of SeaPort-e Task Orders (in years) • Average length fell a 4.5 4.2 4.1 4.2 full year from fiscal 3.8 3.8 3.9 2010 to fiscal 2012 4 3.4 Shorter terms as 3.5 3.2 // • Fiscal 2012 average is procurement chiefs push 3 lowest since fiscal 2004 2.5 2.2 more frequent competition. 2 1.5 1 0.5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012
  • 8. MARKET OUTLOOK 7 “The tripwire policy reflects a significant environmental change in acquisition policy CONTRACTING AND MARCH BUDGET MADNESS from ‘How quick can I get this done’ to ‘Do I know how every penny is being spent.’” –More scrutiny equals more Navy notice to contractors - May 14 2012delays. guidance. - Reduction of duplicative contracts - Automatic review of labor rates over $250K a year. - Tracking of proposed versus actual rates. - Crackdown on subcontracting pass through fees. - Increased re-solicitations when only one bid received. // GAO Bid Protests Filed, by Fiscal Year More bid protests equal more delays. 2,500 2,353 Up 5.2% 2,475 2,000 1,500 1,000 500 0 2011 2012
  • 9. MARKET OUTLOOK 8Uncertainty drives more work to IDIQs. CONTRACTING AND MARCH BUDGET MADNESS MAC Obligations By Fiscal Year $100 $92 Billions $88 $90 $84 $79 $80 $69 $70 $60 $54 $50 $46 $40 $35 $30 $25 $20 $15 $10 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 //
  • 10. MARKET OUTLOOK 9 FY2012 Obligations CONTRACTING AND MARCH BUDGET MADNESS SeaPort Enhanced 5.0 LOGCAP IV 3.8 S3 2.4 USC-6 2.3 CRAF 2.3 SEWP IV 2.0 ITES-2S 1.8 EAGLE 1.6 Alliant 1.6 Encore II 1.4 $0 $1 $2 $3 $4 $5 $6 Billions // Note: Non-schedule MACs. FY2012 data is preliminary. LOGCAP IV is the Army’s Logistics Civil Augmentation Program IV; S3 is the Army’s Strategic Services Sourcing; USC-6 is U.S. Transportation Command’s Universal Services Contract – 6; CRAF is U.S. Transportation Command’s Civil Reserve Air Fleet; SEWP IV is NASA’s Solutions for Enterprise-Wide Procurement IV; ITES-2S is the Army’s Information Technology Enterprise Solutions – 2 Services; EAGLE is Homeland Security’s Enterprise Acquisition Gateway for Leading-Edge Solutions. The Navy Runs SeaPort Enhanced; the General Services Administration runs Alliant; the Defense Information Systems Agency runs Encore II. Source: Bloomberg Government proprietary federal procurement database.
  • 11. POLICY DRIVES PROCUREMENT: CYBER 4 CONTRACTING AND MARCH BUDGET MADNESS Funding for DHS Cybersecurity accounts, by fiscal year (in millions)President Obama’s 2012 2013 $350 328executive order oncybersecurity will drive $300opportunities at $250 229 218Homeland Security this $200year. $150 $100 $50 32 $0 Federal Network Security Information security on federal networks //
  • 12. POLICY DRIVES PROCUREMENT: HEALTH 11 CONTRACTING AND MARCH BUDGET MADNESSCenters for Medicare andMedicaid Services andInternal Revenue Servicelead $1.3 billion inAffordable Care Actcontract awards. IRS isramping up its work now. //
  • 13. 12 CONTRACTING AND MARCH BUDGET MADNESS Q&ALearn more about Bloomberg Government at BGOV.com //

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