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%.
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As the Federal Budget changes and is whittled down, there will obviously be some programs that will be cut and or eliminated. It has been widely publicized that non-essential travel has been greatly reduced within the government to help reduce costs. Even the Blue Angels flight team was grounded for a period of time during 2013 (They will be back in the air for the upcoming fiscal year). I thought it might be worthwhile to look at some of the programs that we have heard of that could either be casualties or might be good candidates to survive.
We have to ask ourselves what some of the underlying causes of the government shutdown are. Certainly there is the debate about the health care plan, but that is too obvious. The counter argument is all about the budget and about the spiraling federal deficit. Even the argument about the health care is deeply rooted in the budget talks (can the government afford this program?). So, when you combine the effects of Sequestration from earlier this year (which continues into 2014 by the way) with the current squabble over the budget and deficit, will this find its way to the business sector outside of government? My immediate concern today is with the pool of government contractors and whether or not they would be faced not only a crippling reduction of cash flow but possible contract termination. I don't know how many contractors know the process for termination for convenience of a government contract. I will try to summarize that here.
Since this is a topic very near and dear to all of us Government Contractors, I think we should continue to explore implications and ramifications of the Federal Government Shutdown. I have read several places that the shutdown may last for at least a couple of weeks. There is another "elephant in the room" with the approach of the limit on the debt ceiling. The debt ceiling is the limit in the amount of funds the US may borrow. In 2011 Congress raised the debt ceiling to $16.7 Trillion. In May of this year we exceeded that but the treasury department has used some "tricks" to stay under the limit since then (see a New York Times article on this). As of October 17th, it will no longer be possible to stay under this debt ceiling without an act of congress to raise the limit. The long and short of that is that the United States could go in default on payment of some of it's obligations as a result. This would have serious consequences. That would also most certainly affect the 2014 budget, further causing problems for an already strained system. If you think we had problems with the flow of money from the Federal Government during Sequestration, guess what a default would do? This could have a ripple effect into the economy in general. Not a good situation. Many have suggested that the budget (even if by continuing resolution) must be solved prior to the debt limit being considered. Last week my brother wrote a letter to both President Obama and to House Speaker Boehner asking both of them to lead a resolution to this crisis. Essentially he is asking them to do what they were elected to do in the first place. I think he has a good idea. We should all write to our elected officials right now to tell them this message. In addition I think we should tell them that they are hurting small business and this is the true backbone of the American economy. If they truly want to see a strong America, they should want to support the small businesses around the country for not only job growth but also for economic growth.
Is it just me or is anyone else getting tired of hearing the Federal Government threaten to shut down? It seems to happen every 3 or 4 months any more. The problem usually boils down to the Democrats and Republicans not being able to get along and play in the same sandbox so they just threaten to "do nothing" so that the government will shut down. "That ought to get a response", just like it did when you were in kindergarten. One side threatens some catastrophic event in order to draw everyone's attention to the issue (or really draw attention to themselves I think). "When the government shuts down, everyone will realize that I was right and we will get our own way"! Well, it rarely works that way in the real world. I find the parallels to today's politics to the politics of kindergarten to be alarming.
There has been a lot said about the impact of Sequestration on not only the government departments but also on Small Business. I have seen a lot of indications that small business may be disproportionately affected by the cuts. The rationale is not only a cut in Federal Programs that some small businesses were bidding on but a cut in funds for the Small Business Administration will mean less money available for Small Business loans. Also, Federal Government departments that traditionally provided assistance for Small Business may lose staff and thus the Small Business will lose some of their "free" support that was afforded them in the past (navigating export regulations is only one example). When you combine this with the apparent delay in funding from many agencies (their way of mitigating risk of not knowing the full effects of sequester) or the reduced level of funding available on smaller contract releases the situation has made Small Businesses very nervous. When we depend so heavily on job growth from Small Business, this almost seems counter-productive to the President's mission.