Impacts of ending Sequestration
There are plenty of people offering suggestions about what the government's sequestration is doing to the industry of government contracting. Defense contractors are the largest segment of this population and probably the most impacted. There have been projections that the Department of Defense would have to lay off over 6,000 of it's civilian workforce in 2014 just due to sequestration cuts. It was also forecast that research and procurement could be cut by up to 16% and maintenance could be cut by as much as 12%.
There is a push in congress to come to an agreement to end sequestration. A budget conclave began over 2 weeks ago with the goal of reaching a resolution by Dec. 13th. This appears to be a tall order, given the way we have seen our government work lately. There are some estimates, however, that over a million jobs could be added to the economy by ending sequestration. It is also estimated that the economy could grow by about 1% by ending sequestration. So what is the difficulty? The other side of the coin is spending and the deficit are out of control. Yes, we need to find ways to trim that but are across the board reductions the way to do it? Some of the highest expenditures that make up the deficit are related to entitlements. This issue is not really being addressed. So sequestration is really not an effective cure since it is not addressing the major root cause.
Sequestration is causing concern in the industry. Last year, there was enough carryover and enough backlog and enough foreign sales that major defense contractors could manage their companies without too much impact. As this moves forward, those sources will dry up and the only option left will be for these companies to trim expenses. We can see that starting to happen as today the nation's largest federal contractor announced layoffs of up to 4,000 workers. It will only be a matter of time before the other, smaller, primes follow suit. If the budget conclave does manage to end the sequestration it could slow this trend down but can we be optimistic that this will happen?
Right now government contractors need to pay attention. Pay attention to the programs you are supporting and to your customer. Stay in touch with your customer, now more than ever. You need to be ready to act and formulate backup plans. We are certainly living in interesting times.