Vendors start to see contracts slowing down with sequestration looming

Contractors warn of possible layoffs due to potential budget cuts. Some companies are in waiting mode to see what happens with Congress over the next six months...

With every passing moment, agencies inch toward automatic spending cuts totaling more than $1 trillion. But a leader for one of the largest federal contractors is urging the government to act as if sequestration will not happen.

Uncertainty about how much money agencies will end up with in 2013 has prompted them to delay contract awards in the current year, said Debbie James, SAIC’s executive vice president for communications and government affairs.

That makes it more difficult for contractors to effectively provide products and services.

“That adds to the uncertainty and challenges on our side,” said James, in an interview for Federal News Radio’s special report, Inside the World’s Biggest Buyer.

Debbie James, executive vice president for communications and government affairs, SAIC (SAIC photo)
Her company receives a large percentage of its federal contracts from the Defense Department. “If [agencies] could act as though it were a more normal year … that would be very helpful.”

Lawmakers floated ideas to stop sequestration, which is set to begin in January 2013. But analysts predict lawmakers will not strike a deal until after the November election.

Whatever happens, agencies should not let the potential for cuts next year drag down acquisition in 2012, James said.

“Right now, we’re all kind of stuck,” she said. “We’re depending on the political system to try to come up with a deal so that we know what the budget will be — hopefully that we know whatever the level of the budget, it won’t be this across-the-board cut situation, which … everybody agrees is bad and could trigger agencies to do layoffs.”

The possibility of substantial industry job cuts surfaced in recent weeks when industry leaders warned that they might send layoff notices around fall.

“It is quite possible that we will need to notify employees in the September and October time frame that they may or may not have a job in January, depending upon whether sequestration does or doesn’t take effect,” said Robert Stevens, Lockheed Martin chairman and chief executive, cited in media reports.

Northrop Grumman and Boeing might also notify employees of layoffs as they prepare for potential spending cuts. In addition, SAIC may decide to join the crowd, James said.

“We hope to avoid any layoffs as a result of the sequestration threat, but we’re assessing it as well,” she said. “But if sequestration actually hit, boy, we would have to reassess the whole thing.”

Unintended consequences of acquisition reform

Even as contractors mull possible job cuts because of a muddy budget picture, James said they also worry about “unintended consequences” of efforts to improve acquisition and save money. An example is the concept of lowest-price technically-acceptable contracting.

“[SAIC], for example, might lose a program because of the low-price technical-acceptability aspect,” she said. “And then, the customer becomes very disenchanted with the new winner because the new winner is not really giving the service that the customer thought he or she was going to get.”

The number of rules to increase competition might also generate unintended consequences, James said, because while the goal is worthy, it can overwhelm federal and industry acquisition employees.

“Companies, as well as the acquisition workforce in the government, are constantly churning over proposals and the government is constantly trying to evaluate those proposals,” she said. “That could drive increased cost for everybody and it certainly means delays in awarding contracts and getting work accomplished.”

To prevent problems, agencies should engage in continual conversations with industry, James said, so that contractors can better inform the government about the potential effects of any given acquisition reform or contracting requirement.

“It’s a journey to get this right, and to get the best deal for the taxpayer but the right service that the government needs,” she said.


More from the Special Report: Inside the World’s Biggest Buyer

Plan to prevent sequestration unlikely before election

Sequestration may hit defense industry harder than troops

GOP plan cuts fed pay, workforce to save DoD from sequestration

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