Headlines: State of Flux – The New Normal for Contractors

White House in a StormEveryone’s trying to figure out what the next four years are going to be like for the federal government. Are agencies on the chopping block? Where is discretionary spending heading? While we don’t have answers, we do have some clues.

Trump’s First Budget

The continuing resolution (CR) that the 114th Congress tossed together to hand the budget ball off to the 115th is set to expire April 28, 2017. Between now and then, the new administration is hoping to piece together a game plan to present to Congress.

Belt TighteningIt’s been reported that the Trump team will be basing much of its ideas on the Republican Study Committee’s (RSC) 2017 plan. Here are some key points from that plan:

  • Reduce spending by $8.6 trillion over the next decade
  • Achieve balance in 2024–eight years–without relying on revenue increases
  • FY2017 base discretionary spending would total $974 billion, including reducing non-defense discretionary to $400 billion
  • Provide full funding for national security, including $574 billion for base defense discretionary in FY 2017, along with $59 billion to carry out the Global War on Terror.
  • Cap top rates at 25 percent, eliminate special interest tax breaks, reduce capital gains and dividend rates

There’s a lot more to the plan, but the essence is that social programs will be dramatically cut and to reach its budget neutrality goals, significant economic growth must occur. In short, it is trickle-down economics on steroids.

According to The Hill, the Trump plan is more aggressive, targeting a $10.5 trillion federal spending cut over ten years.

Specifics, of course, are far from settled. But, some ideas are out in the ether, including:

  • The departments of Commerce and Energy would see major reductions in funding, with programs under their jurisdiction either being eliminated or transferred to other agencies.
  • The departments of Transportation, Justice and State would see significant cuts and program eliminations.
  • The Corporation for Public Broadcasting would be privatized, while the National Endowment for the Arts and National Endowment for the Humanities would be eliminated entirely.

The Hill also reports that the administration’s full budget, including appropriations language, supplementary materials and long-term analysis, is expected to be released toward the end of Trump’s first 100 days in office, or by mid- to late April.

Medicare and Social Security

It’s no secret that the biggest drivers of federal spending are the Great Society stalwarts of Medicare and Social Security. On the campaign train, Trump promised no cuts to those programs. Will that pledge remain?

Worry 1Health and Human Services Secretary nominee, Rep. Tom Price (R-GA) stated in Committee hearings that nothing had changed.

But, the RSC plan calls for increasing premiums, means testing and increasing the eligibility age — all of which may be necessary to balance the budget in a decade.

Knowing how spending will be transformed for these giant programs will be essential to being able to predict how much money will be leftover once the military bills are paid and large tax cuts turn down the federal revenue stream.

An unnamed Congressional aide told The Hill:

“[Rep. Mick Mulvaney (R-SC), Trump’s choice to head the Office of Management and Budget] and his colleagues at the Republican Study Committee, when they crafted budgets over the years, they were serious. He wants to make significant, fundamental changes to the structure of the president’s budget, and I expect him to do that.”

What About Contracting?

One of the new President’s first acts was to institute a media blackout for the staff of the Environmental Protection Agency (EPA) and freeze all new contracts and grants by the agency.

EPA 3It’s premature to attach too much importance to the contract freeze, especially when the administration also instituted a governmentwide hiring freeze.

Given the makeup of his Cabinet and the “gag order” issued to the EPA, it’s safe to say that agency will not be at the top of Trump’s Christmas card list anyway.

But, the contract freeze could portend other such actions in anticipation to the release of the White House’s budgetary blueprint in April.

However, there are also broader and longer term trends affecting contracting.

Bloomberg looked at the number of new vendors servicing federal agencies and reported a pronounced trend:

SOURCE: Bloomberg Government

SOURCE: Bloomberg Government

In fact, the company noted that the number of new vendors added to the corral of federal contractors in 2016 hit the lowest point in a decade — and this happened despite a eight percent increase in discretionary spending.

The trend should worry government buyers for a number of reasons:

  • The government’s goal has always been to promote wider contractor participation to promote competition.
  • It also provides federal agencies with a wider range of ideas and broadens the nation’s industrial base — a national security concern.

Bloomberg also notes:

It’s not only the declining number of new vendors that is concerning but also their declining share of all active vendors. From fiscal 2007 through 2016, the overall number of active vendors fell 23 percent, to 124,000 from 161,000. Over this period, the share of new vendors fell by nearly half, to 13 percent from 24 percent. Yet the overall fiscal 2016 spending level was 0.9 percent higher than it was in fiscal 2007.”

At the same time, business is booming for incumbents:

SOURCE: Bloomberg Government

SOURCE: Bloomberg Government

Government contractors have gone through an active phase of mergers and acquisitions over the past few years. These findings indicate that trend in unlikely to diminish any time soon.

During the never-ending election campaigns, revitalizing manufacturing jobs was a big topic. One of the barriers to bringing back jobs is the dramatic advances that have been made in technology. From just-in-time inventory to AI-managed industrial robots, building anything is very different than it was in the 50s and 60s.

Bloomberg made a couple of interesting points about advances in procurement technology and strategy that also affect the award contracts to new contractors:

  • An emphasis on acquisition efficiency has led to a sustained reliance on large multiple-award contracts (MACs) that limit the number of task-order bidders to a pre-selected number of vendors.
  • Vendors seeking to sell cutting-edge cloud technology are subject to the FEDRAMP certification process before they are authorized to offer cloud solutions to agencies.
  • Contract officers now use online dashboards to compare contract terms and conditions side-by-side to select best-in-class vehicles that maximize an agency’s investment. While this increases efficiency, it also serves to limit the number of contract holders.

So, What’s the Bottom Line on All This?

Contracting will always be highly competitive. For the next year or two, it will also be chaotic. The new administration’s desire to “blow up the system” is going to butt heads with the GOP establishment currently in charge of Capitol Hill.

Agency staffs are going to be operating on tenterhooks in many cases not know how much they can spend or if they’ll even have jobs in the future. Anxiety is never a good stablemate for business.

Then, there’s the old adage that speed kills. The administration is writing and signing executive orders as fast as the printers can spit them out. There is little evidence that these actions are being well thought out.

For a lot of federal contractors, this all adds up to a tense 2017.

Cybersecurity News

  • The Army’s first bug bounty resulted in the discovery of 118 security holesThe most serious enabled a security researcher to hop directly from the Army’s main recruiting website, GoArmy.com, to an internal DoD network that’s not supposed to be accessible to the public without triggering any warnings to the Army’s cyber defenders. [Federal News Radio]
  • Saudi Arabia is warning that a computer virus that destroyed systems of its state-run oil company in 2012Has returned to networks in that country. The Shamoon virus was believed to have been sent by Iran following the discovery of the Stuxnet virus that targeted Tehran’s nuclear enrichment program. [Fifth Domain]
  • If you have an Apple device that’s not up-to-dateGo update right now. The company did not release details of the vulnerability it discovered, but critical updates were issued for all its devices today. You can get more info here. [NextGov]

Defense News

International News

 

And, finally …

College volleyball used to mean smacking a ball over a tattered net between flipping over the burgers and dogs on the grill behind the frat house.

Not any more.

Volleyball for men and women is a highly competitive collegiate sport attracting some of the nations most gifted athletes.

In case you have any doubts about that statement, we offer this battle for match point between two Canadian universities:

And, THAT’s the way to put mustard on the ball …

Posted under: Acquisition, Army, Budget, Congress, Cybersecurity, Defense, Federal Government, Management

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