Sequestration effects on Government Contracting
There has been no shortage of news and writing about Sequestration and how that is affecting Federal Contracts. As the dust begins to settle it is becoming obvious that some of the loudest complaints about Sequestration could have been just political positioning. For instance, Dr. Stephen Fuller of George Mason University indicated last week that the cuts in the 2012 Federal Budget were more severe than the Sequestration cuts of 2013. Certainly things like threatening to shut down air traffic control are done in a grandstanding manner to draw attention to certain areas and create public sympathy for the agency facing budget cuts. There are beginning to be more and more examples of the amount of political positioning that was going on in the name of Sequestration. There also are other consequences from Sequestration that perhaps are less publicized.
One real effect of Sequestration is the slowing of processing not only contracts within the government but also the slowing of the government in paying its contractors. The slowing of issuance of contracts has the unintended consequence of contractors looking elsewhere for their business. I actually heard a small business that was told for over 9 months that they would receive a contract, the funds were there but it keep being delayed. In the end, the government did not issue them the contract after waiting for this period of time. Do you think this contractor will wait around in the future? There are also real examples of how the government is delaying payment to contractors as we have examined in this blog earlier this year. This was done so that the government could protect their cash flow. This action actually hinders small business and increases the cost to the small contractor for doing business with the Federal Government. This unintended consequence will actually put an upward pressure on prices. So this will artificially make the government's budget cuts harder to administer. Also, I heard last week from a couple of Air Force officials, that Sequestration is causing the government to use incremental funding more than in the past since they don't know if the full amounts are approved for spending. This means more contracts, more negotiations, more audits and more administration in general. Again, this will have an impact on the federal budget in that procurement personnel, Contracting Officers and others will see an increase in workload. This is not the right direction if we are serious about cutting waste from the budget.
It is these unintended consequences, mainly a result of political positioning, that will add cost back into the Federal Budget. So the real savings is debatable. We might be saving money on certain programs only to add money back into the bureaucracy. Certainly not the right direction to be headed if we want to trim expenses.