President Donald Trump spent his first day in office dealing with immigration and energy policy, undoing as much of the previous agenda as he could. The less obvious changes like where to substantially cut government spending will come later. Whatever happens, it will eventually get around to contractors. David Berteau, president and CEO of the Professional Services Council, says that if the past is prologue, it makes sense to look at what Trump did the first day around. He joined the Federal Drive with Tom Temin in studio to discuss.

Interview transcript:

Tom Temin: And you did take a look at what happened the last time. And what stands out to you, David?

David Berteau: Well, Tom, thank you for having me in. I was at the Professional Services Council when Barack Obama was still president. That’s when I first joined as CEO. So we were there for the whole four years of Trump one. And I think there’s a couple of things that you have to pay attention to there. One is the overall objectives of cutting taxes and reducing federal burdens on the economy at large spills over into contractors as well. And we had a number of attributes that came out of the Trump administration. But a second thing that I think is a key lesson to learn, and maybe this administration has learned it, is you do have to follow the rules of the process when you’re issuing regulations. For example, as the federal government, you have to follow the Administrative Procedure Act. And one of the things that we saw in Trump one was a lot of things went to court, right. A lot of rules that the Trump administration promulgated were challenged by somebody. They took them to federal court. It turns out one of the great weaknesses in that if you didn’t follow the process, then the courts can rule without ever getting to the substance because you just didn’t follow the process.

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Tom Temin: Right. And the idea then of reducing regulations, if you want to repeal a regulation, that is a regulatory action with rulemaking and ACUS process.

David Berteau: Exactly. And we rely on that from the contractor side because we want to have input because oftentimes a regulation will be written from the point of view of the federal government’s executive privileges, but not from the point of view of those who actually have to do the work as a contractor. And so we like to have input to that. At PSC, we file comments on these things. I think we did 40 of them in 2024, which is a big increase in pace. But I think that process produces better rules because you put out the draft, you get the comments in. Those comments often focus on how are you going to do this, what’s the implementation, what’s the execution look like? And I think that comes into play.

Tom Temin: All right. So what are you thinking they will do based on what they did the last time around?

David Berteau: Well, there’s a second problem they had with court challenges to some of the rules and regulations, and that was that they hadn’t necessarily followed the Vacancies Act process to make sure that the individuals in the decision-making part of the role were, in fact, justified legally to be there making those decisions. We had some rules that were overturned, not because they didn’t follow the Administrative Procedure Act, but because the individual making the decision as, for example, the acting secretary of a cabinet agency was not qualified under the law to be doing that decision. So that’s the second piece they have to pay attention to.

Tom Temin: Right. They even had people that were not acting but were performing the duties of the acting and so on because the acting ran out.

David Berteau: One of the things that we look at is what President Trump has said, both as president then as when he wasn’t president and when he was president-elect and now back in office again and over time there. And one of the things that he has said over and over again is how he likes having acting people because he can get rid of them more quickly. That was one of the themes that he often put into play. We’ll see how long this new team lasts in place.

Tom Temin: Well, I sense a more businesslike approach to what it is they want to get done this time. I think they had their appointments much earlier. It seems less ad hoc than the last time.

David Berteau: I think you’re probably right, Tom. You look at it, this is the first time in a long time, in fact, only the second time in American history that a president was in office for four years and then was out for four years and now he’s back in office. If you use that interregnum, those four years when you’re out of office, you and your people, your team, to say, ‘OK, what did we do last time? How did it work? What do we need to do different this time in order to get different outcomes and results?’ I think it puts him in a unique position to have learned a lot of lessons from Trump one to have thought about those lessons over the course of the Biden administration and now to come back and apply those lessons. We’re going to be watching that very carefully.

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Tom Temin: We’re speaking with David Berteau, president and CEO of the Professional Services Council. And you’re looking for certain things, say R&D tax credit, which you really can’t do by executive order. I mean, to change the tax code takes a law.

David Berteau: That is absolutely the case. In 2017, we had the Tax Cut and Jobs Act that passed. One of the elements of that was a 100% write-down of research and development costs in the year of execution. While this is generally seen as a big technology and a big thing for the broader national economy. It has unique aspects for government contractors because if you’re putting a bid together to solve a technology problem in an agency, whether it’s a hardware problem or a software problem or an overall systems problem, you can actually, as a contractor, invest in putting your proposal together. Do research and development to build a better way for the government to get something done. And you can afford it because you can write it down. If now that the law has expired, you can only write off 20% of that with 4%, 5% margins as many of these contracts have. You don’t generate enough profit to spend that kind of money. So ultimately, the government itself loses the benefit of this R&D tax credit. So we would love to see that restored in the tax extenders.

Tom Temin: And something else that could happen is a freeze on federal hiring coupled with declaration of an emergency on the Mexican border. This we’ve been promised pretty much that was revealed that’s what the president would do immediately. And therefore, that could really call in contractors on a lot of fronts.

David Berteau: In the course of most of the presidents that have been inaugurated in my time in Washington, most have put a full or a limited hiring freeze in place for federal.

Tom Temin: That’s pretty routine.

David Berteau: That’s pretty routine. So it doesn’t really indicate any political game one way or the other. It’s a, ‘let’s freeze the hiring until we know what we want to do and make sure we know who we want to get in here and where we want to build up.’ And I think that same thing will happen here, but the work still needs to be done right. And so one of the benefits of having contractors is you can, in fact, surge and then dial back so you can increase the amount of work being done rather quickly and then decrease it when the time comes to decrease it. So we’ll see whether that comes into play as Trump takes office.

Tom Temin: And if the military starts having a big role, say, in border security or border construction to create what it is they need to control the border as they see fit. You could almost have like a General Leslie Groves situation where, still, the work is mostly done by contractors more overseen than actually carried out by the military.

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David Berteau: Well, one of the key things that comes into play is what does a contract actually require you to do? Any time you see a problem with a contract somewhere overrun or a failure to deliver what was expected. Oftentimes, it’s not just the performance of the contractor. It’s actually insufficiencies and inadequacies in the way the contract was written and solicited and evaluated and awarded. So it’s really important for the Trump team to get it right upfront in terms of what the contract requirements are and put those into place, whether it’s supporting the military at the border or whether it’s supporting any of the other activities.

Tom Temin: All right. So that was emergency funding. We’ve also got the idea of reprograming impoundment in the absence of a 2025 budget. It all gets pretty scrambled-looking.

David Berteau: Well, here we look back also what happened in Trump one. And there are a couple of cases that stand out very clearly here. One is for the border wall, the White House took money from other activities. Army recruiting money, for instance, provided, I think somewhere around $1 billion that was moved over to border wall funding. GAO ended up writing a report. The Government Accountability Office wrote a report that says you didn’t follow the reprogramming procedures in order to move that money. I don’t remember exactly what the OMB director said, but it was something along the orders of we don’t work for GAO. We work for the president. But that kind of question came into play similarly for the Ukraine military assistance. GAO found that the president and the executive branch had violated the Impoundment Control Act of 1974 with a similar reaction. So it turns out that unless Congress enforces it and by the way, reprogramming is not law, reprograming is just a set of congressional rules that you follow. If Congress doesn’t enforce it, then the administration does have the flexibility, I think, to move forward there. We’ll be watching that very closely as well.

Tom Temin: So in other words, they’re constrained by process in some areas and less constrained, it’s more tradition in other areas. So they have to discover where they can make a lot of difference quickly.

David Berteau: And here, I think, is where what they did in the interregnum is important, right. Whether it’s Project 2025 documents or things that came out of other think tanks, there’s a lot of work has been done by the incoming Trump team or some of those on the outside close to that Trump team in terms of, ‘OK, what can we do differently this time to get our results better and faster?’ Because they also know they have a limited amount of time.

Tom Temin: Right. If they really want permanent change, though, they’re going to have to work through Congress because executive orders have become like a blowpipe and changes 180 degrees every time there’s a change in party.

David Berteau: You’re already seeing it, I think, with Trump executive orders that are reversing Biden executive orders, which in turn, reversed Trump one executive orders. So if you want permanence, you do have to get it into legislation. And I think that’s another lesson they’ve probably learned is you got to work with Congress or you don’t get laws.

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