B2G Blog - Congress

WIC program funded through Appropriations Act

Tue, 26 Mar 2013 10:20:00 -0400

With last week’s passage of the Continuing Appropriations Act of 2013 (H.R. 933), the U.S. Department of Agriculture’s state-administrated Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) will receive $6.8 billion in discretionary funding. This will provide an additional $250 million for WIC and help alleviate the approximately $350 million cut from the program due to sequestration. Of this total, $35 million is appropriated for management information systems (MIS), and $14 million for infrastructure upgrades. The passage of H.R. 933 funds the government through September 30, 2013, and prevents a government shutdown.

According to the National WIC Association, “With this new higher funding allocation, WIC contingency funds, unspent SNAP transfer funds carried over from the previous year, and unspent recovered funds available for reallocation, WIC will likely be able to manage through the rest of the fiscal year without cutting any participants.” This is a turnaround from the 600,000 women and children projected to lose benefits as a result of the sequestration cuts that went into effect March 1.

Georgia, Indiana, and Rhode Island are just three of many states actively planning to replace or upgrade their MIS. As discussed in previous blogs, Montana and California are two states working to implement new or upgraded electronic benefits transfer (EBT) systems for WIC and other public benefit programs. Recently awarded WIC contracts include New Jersey’s Automated Client Centered Electronic Service System (WIC ACCESS) contract to CMA Consulting, Florida’s EBT contract to eFunds (FIS), and Indiana’s EBT planning services contract to JRW Service Corporation.

Deltek’s GovWin IQ database contains more than 80 pre-RFP opportunities relating to WIC information technology projects and related consulting and quality assurance (QA) services, as well as detailed award and contract information for nearly 100 awarded WIC contracts. Deltek is also closely tracking sequestration’s impact on government contracting and providing insight on how the vendor community can overcome the cuts and continue to win government business at the state, local and federal levels.

Non-subscribers can find out more about GovWin IQ and sign up for a free trial here!

Congress Passes FY 2013 Funding ? No Shutdown, Sequestration Intact

Fri, 22 Mar 2013 14:00:00 -0400

This week the Congress passed a fiscal year (FY) 2013 funding bill that provides budgets for a handful of federal departments and continuing resolution (CR) level funding for the remaining departments and agencies through the end of fiscal 2013 on September 30. The final bill averts the potential for a government shutdown and funds key priorities while leaving intact the sequestration rules set under the Budget Control Act (BCA).

When all was said and done, the House passed a Senate amended version of the original H.R. 933 House funding bill. The House original appropriated new budgets for the Department of Defense (DoD), military construction (MilCon) and the Veterans Affairs department.

The Senate added new budgets for Agriculture, Commerce, Justice, Homeland Security, NASA, and select other agencies. All others will be funded at FY 2012 levels. (For our take on the overall impacts of the House bill check out this recent blog and for some DoD, VA and DHS implications see this blog.)

Year-over-Year Changes

Of the handful of appropriations bills that were finally passed, Congress did make some changes to fund select departments and agencies to reflect current priorities and give some flexibility in dealing with spending caps. A summary of these appropriations are presented in the table below.

Department of Defense

Total FY 2013 discretionary spending for DoD is set at totals $604.9 billion, including $87 billion for Overseas Contingency Operations. This is roughly $30 billion less than the FY 2012 appropriations, representing a decrease of 4.5%. Other highlights and funding priorities in the bill include:

Complies with the Budget Control Act spending caps by eliminating unneeded, unrequested funding that would be provided if the CR was extended
Directs 671 cuts to unnecessary or under-performing programs and eliminates excess funding due to schedule delays, program terminations, redundancies, and budgeting errors
Rescinds nearly $4 billion in unspent prior year funds
Aligns funding to new Defense strategy to fund current needs and reprioritizes funds to address known shortfalls
Fully complies with Senate Rule XLIV for transparency and maintains earmark moratorium
Bill provides the necessary funding for training and military health care
Adds $1.5 billion to the National Guard and Reserve Equipment account
$486 million to repair aging base facilities
Adds $463 million to mitigate shortfalls in day-to-day operation costs for installations
Increases funding for nanotechnology, advanced materials, silicon carbide, and manufacturing technologies

Homeland Security

Overall FY 2013 discretionary spending for DHS is $39.6 billion, excluding $254 million for Overseas Contingency and $6.4 billion for the disaster relief cap adjustment.

Coast Guard: $10.4 billion overall, of which $9 billion is discretionary spending. The bill also provides targeted increases above the FY 2013 request to support front line personnel with resources, including $8 million for initial acquisition planning and design of a new polar icebreaker and $20 million to reverse cuts proposed in the request for critical operational assets.
Transportation Security Administration (TSA): $7.5 billion for TSA is reduced by $2.4 billion in offsetting collections and fees. The bill includes funding for investments in explosives detection systems, passenger screening technologies, and air cargo security. The bill includes several funding oversight requirements including expenditure plans for checkpoint security technology investments, explosives detection systems for checked baggage, and air cargo security. In addition, language is included requiring TSA to provide a five-year investment plan forecast for passenger screening technologies.
U.S. Customs and Border Protection (CBP): $11.9 billion, which adds $79 million above the request for procurement, operations, and maintenance of critical air and marine assets used to defend our borders – including one additional multi-role enforcement aircraft, enhanced radar for unmanned aerial systems, and $28 million to increase flight hours.
U.S. Immigration and Customs Enforcement (ICE): $5.7 billion for ICE, primarily supporting personnel and operations, including border patrol, special agents and immigration officials.
United States Citizenship and Immigration Services (USCIS): $112 million in direct appropriations for USCIS and fully funds the E-Verify employment eligibility verification system.
United States Secret Service: $1.6 billion, adding $3.5 million for priority domestic and electronic crimes investigations and continues the multi-year modernization of critical White House and other Secret Service information technology and communications systems.
Science and Technology (S&T): $835 million, returning to FY 2011 levels, for R&D in biological defense, explosives defense, cyber security, first responders, border security, chemical countermeasures, and interoperability.
Domestic Nuclear Detection Office (DNDO): $318 million, including $28 million for handheld portable radiation detectors and $75 million for research and development of next-generation detection technologies.
National Protection and Programs Directorate (NPPD): $1.4 billion, including the following:
- $232 million for a new account, the Office of Biometric Identity Management (OBIM). Instead of realigning the US-VISIT program as proposed in the FY 2013 budget, the bill creates a new account for OBIM, the DHS lead responsible for biometric identity management services.
- $756 million for cybersecurity programs including Einstein intrusion detection and a critical cyber diagnostic strategy for the 118 federal agencies. Also included in cybersecurity funding is $16.8 million for cyber education programs.
- $260 million in infrastructure protection programs to bolster against natural and man-made disasters, including $78 million to implement the Chemical Facility Anti-Terrorism Standards Program.
Office of Health Affairs (OHA): $132 million, including $85 million for the Bio-Watch Program and $2 million to complete demonstration projects through the Chemical Defense Program.

Veterans Affairs

The VA receives $134 billion for FY 2013, which consists of $72.9B for mandatory programs ($9.1B above FY 2012) and $60.9 B for discretionary funding ($2.5B above FY 2012.)

Homeless Veterans Programs: $5.76B for health care and support services for homeless veterans.
Iraq and Afghanistan Veterans: $3.28b to meet the health care needs of veterans who have served in Iraq and Afghanistan, a $510M increase over FY 2012.
Long Term Care: $7.2M for long term care for the nation’s aging veterans as well as severely wounded combat veterans from the wars in Iraq and Afghanistan.
Information Technology (IT): $3.3 billion for IT projects.
- $1B for pay and associated costs
- $1.8B for operations and maintenance
- $494B for DME including $169m for the iEHR and $38.5m the development of paperless claims systems. Requires approval for iEHR spending over 25% of total allotted.

Health and Human Services

National Institutes of Health: Provides $1.5b for NIH, a $71m increase including $165m for the National Children’s Study.
Food and Drug Administration: Provides $2.5b for the FDA including $50m for implementation of the Food Safety Modernization Act.
Child Care and Development Block Grant: Provides $2.3b for the program, which is a $50m increase for grants to states to improve working families’ access to quality, affordable child care.
HHS Lease Assistance: Provides additional funding to address imminent lease expirations and consolidations to allow HHS to save millions in annual lease costs and reduce its real property portfolio.
Head Start: Provides a $33.5m increase for the Head Start program.

Transportation

Section 1801 of the legislation increases funding for highway, highway safety, and motor carrier safety programs to make them consistent with the levels previously authorized under the Moving Ahead for Progress in the 21st Century (MAP-21) Act. Total funding provided by MAP-21 was $561 million in FY 2013 and $572 million in FY 2014.
Normalized MAP-21 funding potentially has an impact on initiatives related to the improvement of travel data collection and safety management. These initiatives would include active procurements for Compliance Test Procedures for Electronic Logging Devices and the Road Inventory Program, as well as task orders under contract # DTFAAC09D00081 held by SAIC for NextGen Initiatives Support Services.

Commerce

Department of Commerce will receive $7.7B in total funding.
The National Oceanic and Atmospheric Administration (NOAA) will receive $5B, including funding for satellite programs.
The Patents and Trademark Office (PTO) provides $2.88B.
The National Institute of Standards and Technology (NIST) receives $809M for laboratories and research.
Bureau of the Census will receive $906M.

Justice

Department of Justice will receive $27.3B in total funding.
Grants to State and Local Law Enforcement and crime victims total $2.2B. This includes funding for the National Instant Criminal Background Check System (NICS) improvements.
Federal Bureau of Investigation (FBI) receives$8B for salaries and expenses for national security and counterterrorism investigations, combating cyber threats.
Drug Enforcement Administration (DEA) receives $2.36B.

Energy

Energy Department funding was reduced by a total of $44M.
Energy Efficiency and Renewable Energy reduced by $11 M
Nuclear Energy reduced by $10M.
Science reduced by $13M.
Advanced Research Projects Agency –Energy reduced by $10M to $265M.
Atomic Energy Defense Activities, National Nuclear Security Administration (NNSA) $7.577B, an increase of $363M.
Atomic Energy Defense Activities, Defense Nuclear Proliferation receive an additional $110M.

Agriculture

USDA’s operating budget is a winner this time around as FY 2013 discretionary funding of $20.5 billion represents a 5% increase over the FY 2012 level of $19.5 billion. Funding includes:
$24 million for USDA Departmental Administration to provide for necessary expenses for management support services and general administration. These support services include enterprise IT services provided by the National IT Center (NITC) and investments in enterprise IT modernization called for by the USDA’s Optimized Computing Environment (OCE) initiative.
$44 million for the Office of the Chief Information Officer and $6 million for the Office of the Chief Financial Officer.
$89 million for the Office of Inspector General that the legislation states may be used for contracting.
$811 thousand for the Office of the Under Secretary for Food Safety and calls out that funding shall be directed to the Public Health Data Communication Infrastructure System (PHDCIS) until expended. This potentially affects the following vendors and contracts: General Dynamics, # AG3A94D090194 & Dell, # AG3A94D090137.
$75 million for the Risk Management Agency (RMA), including funding that may be used for the Common Information Management System (CIMS). This affects the IT Support Services contract, # GST0011AJ0019, held by SAIC.

NASA

National Aeronautics and Space Administration receives $17.5B in total funding.
Space Launch System receives $2.1 B including funding for ground operations and construction and related test facilities.
Funding for the International Space Station (ISS) includes $515M for commercial crew transportation to the ISS and $2.9B for operations and research.
NASA Science includes $630M for Space Technology to support human and robotic missions.

Education

Safe Schools and Citizenship: Allows funds available under the Department of Education Safe Schools and Citizenship account to be used to assist educational institutions impacted by school violence.

Interior

Bureau of Land Management $951M for Management of Lands and Resources, $0 for construction.
US Fish and Wildlife Service, $1.2B for Resources Management

Labor

Job Corps Program: Provides an additional $30m for the program.
Unemployment Insurance: Decreases funding for grants to state agencies that administer federal and state unemployment insurance (UI) by $60m.

Fellow GovWin Federal Industry Analysis (FIA) analysts Kyra Fussell, Angela Petty, and Alex Rossino contributed to this entry.

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Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWin FIA. Follow on twitter @GovWinFIA.

Cost-type Contracts in the Cross-hairs at DoD

Thu, 14 Mar 2013 14:15:00 -0400

Although the current focus in the federal market centers on budgetary issues like sequestration, continuing resolutions, and the outlook for the fiscal year (FY) 2014 budget there is another aspect that will push agencies to spend less and achieve economies and value for their contract dollar. Here I am referring to acquisition policy – how agencies contract for goods and services with private sector suppliers. Legislators and policymakers have been looking for ways to drive costs out of the system and one recent mandate targets the use of cost-type contracts.

Background

Cost-type, or cost-plus, contracts exist when a contractor is paid for all of their allowable expenses to a pre-set limit plus an additional payment to allow for a profit. These are sometimes referred to as cost reimbursement contracts. By contrast, fixed-price contracts are those in which the contractor is paid a pre-negotiated amount for the work or product regardless of their expenses. Cost-type contracts may include several sub-types, including Cost Plus Fixed Fee, Cost Plus Award Fee, Cost Plus Incentive Fee, Cost No Fee, and Cost Sharing. These cost-type contracts are popular for programs that have unclear or fast-changing requirements or for technologies that are so new that there is insufficient information to accurately estimate development or production costs. Due to these uncertainties, the agency driving the requirement assumes the financial risk of programs changes – often resulting in cost overruns and schedule delays.

Congress Targets Cost-type Contracts

Given growing budget pressures, Congress, OMB and federal agencies are looking to shift some of this risk back to contractors and limit the potential higher-cost implications of cost-type contracts. In fact, Congress recently put limits on their use at the Department of Defense (DOD). In the FY 2013 National Defense Authorization Act that was enacted in January, Congress set in motion several provisions addressing various areas of federal acquisition and contracting policy that will impact major procurements, including one singling out Cost-type contracts.

Section 811 on the Limitation on Use of Cost-type Contracts requires the Secretary of Defense to modify acquisition regulations by May 2013 to prohibit the DoD from entering into cost-type contracts for the production of major defense acquisition programs. The limitation is not all-encompassing. It does not include individual line items for segregable efforts or contracts for the incremental improvement of systems that are already in production (other than contracts for major upgrades that are themselves major defense acquisition programs.) The law allows the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD AT&L) to grant exceptions if justification is provided to the relevant congressional defense committees. The policy change will apply to contracts effective on or after 1 October 2014, (i.e. beginning in FY 2015.)

IT Cost-type Contracts at the Department of Defense

To gain a perspective of the potential impact of the new regulation on IT contracts at the DoD I pulled up data on the reported IT contract obligations over the last five years for the various contract types used. (See chart below.)

Observations

Cost-type contracts are second only to Fixed Price contracts as far as total dollar obligations are concerned.
While the percentage of yearly total obligations made up by Fixed Price contracts grew modestly from 47% to 53% over the period the percentage of total yearly obligations made up of cost-type contracts grew from 21% to 37%.
Cost-type contracts have grown by more than 65% from FY 2008 to FY 2012, compared to Fixed Price contract types which have increased 8% during the same period.

Recent Cost-type Contract Usage for IT

Drilling a bit deeper specifically into the use of cost-type contracts at the four major defense components provides a more focused perspective. (See chart below.)

Observations

Army’s use of cost-type contracts doubled over the period where Navy’s cost-type use increased by nearly 60%. OSD’s usage has grown most dramatically at 3X, but the relative dollars in this category is modest by comparison. The Air Force’s usage has been most modest of the four at roughly 10%.
On average, the Navy makes up more than half of DoD’s yearly IT cost-type contract obligations over the period, compared to Air Force and Army making up approximately 20% each.

Implications

There are several implications for defense IT programs that may result from the new restriction. The limitation may reinforce the growing trend of using short-term fixed-price contracts to meet program milestone goals. Naturally, using firm fixed-priced contracts for long-term IT investments increases the risk for vendors. This has been an explicit goal of several federal agencies that are feeling the pressure of increased scrutiny for poorly performing IT programs.

The limitation may also multiply the effect of budget constraints in prolonging the lifespan of outdated legacy systems over the development or acquisition of updated technologies and systems. This could further delay needed modernization and/or consolidation of legacy systems and reduce efficiencies.

In our broad analysis of the federal IT market implications of the FY 2013 NDAA we identified this and several other areas of federal IT market impact, including cybersecurity, network operations, software use and licensing, and additional areas of IT procurement. The impact is not all negative from a spending perspective. Congress is prepared to fund key IT priorities, but competition is likely to be intense as funding shifts.

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Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWin FIA. Follow me on Twitter @GovWinSlye.

House passes FY 2014 Budget Resolution; Senate Kicks Off Its Own

Thu, 14 Mar 2013 11:42:00 -0400

On March 13, the House Budget Committee passed the FY 2014 budget blueprint from Chairman Paul Ryan (R-Wis.). The structure of the plan drives a $7 billion surplus by 2023. According to The Hill, the plan is based largely on $600 billion in new tax revenue established in the American Taxpayer Relief Act (the legislative hook that kept the government from going over the “fiscal cliff” in January), as well as $716 billion in Medicare cuts originally established in the Affordable Care Act (“Obamacare”). Although Ryan opposed those cuts during his stint as Vice Presidential candidate last year, they figure prominently into his approach to deficit reduction.

Meanwhile, the Senate Budget Committee will begin its markup sessions on its own budget plan on March 14. What is interesting to note is that, while the House plan is mum on the subject of sequestration, the Senate version very clearly states an intention to “Fully replace the harmful cuts from sequestration with smart, balanced, and responsible deficit reduction.”

In the grand scheme of things (and on paper), the House and Senate versions don’t vary significantly from each other. The Senate proposal for Discretionary Budget Authority is $80 billion more than the House version, but the difference shrinks down to $16 billion by 2023. While $80 billion is a whole lot of money to me, it’s a rounding error when it comes to federal spending.

Source: Summary tables, “The Path to Prosperity: A Responsible, Balanced Budget” (House), “Foundation for Growth” (Senate)

While the topline numbers suggest a chance at compromise, the two diverge significantly on the path to those numbers. As noted earlier, the Senate version replaces sequestration which won’t be an easy sell. And Ryan’s version basically relies on the elimination of Obamacare (but also relies on the additional revenue that Obamacare would bring in).

Source: Summary tables, “The Path to Prosperity: A Responsible, Balanced Budget” (House

That’s not going to go over well in the Senate, the House will not be a fan of repealing sequestration, so ultimately both versions are likely dead in the water.

House FY ?13 Continuing Resolution Gives DoD and VA Flexibility, Has Select IT Implications

Fri, 08 Mar 2013 10:20:00 -0400

On March 6, the House passed H.R. 933 which would appropriate funding for the Departments of Defense (DoD) and Veterans Affairs (VA) and fund military construction projects (MilCon) for fiscal year (FY) 2013. The bill will also avert a potential government shut-down near the end of March by funding the remaining departments at their FY 2012 levels under a continuing resolution (CR) effective until the end of the fiscal year. How the bill fares in the Senate is yet to be seen.

Passage of appropriations for the DOD and VA would mean that those departments can allocate funds to new programs, which is not permitted under a continuing resolution which essentially funds the previous year’s programs at the same levels and schedules.

Specifics of H.R. 933, the Department of Defense, Military Construction and Veterans Affairs, and Full-Year Continuing Appropriations Act, 2013 include:

Total discretionary budget authority of nearly $1.2 trillion, including
Full-year appropriations for Defense and Military Construction/Veterans Affairs committees
Defense – $518 billion in non-war funding for the DoD, $87 billion for overseas contingency operations (OCO)
MilCon/VA – $72 billion in discretionary funding for military construction and the Department of Veterans Affairs, with some shifting of funds away from military construction to support increase in veterans’ programs, which are exempt from sequestration
The remaining federal agencies would be funded at fiscal 2012 levels under a continuing resolution covering the remaining 6 months of fiscal 2013

Sequestration

Citing the Office of Management and Budget’s (OMB) March 1^st Sequestration report, the Congressional Budget Office (CBO) noted In a letter to House Budget Committee Chairman Paul Ryan that impact of sequestration on the $1.2 trillion appropriations would be a $68 billion reduction, lowering the overall budget authority for FY 2013 to $1.13 trillion. (An additional $17 billion reduction in mandatory spending brings the total sequestered amount to $85 billion.)

Agency-specific Provisions – Select Details

Although not comprehensive or complete, a quick review of the text of the bill looking for information technology and related acquisition provisions provides the following agency-specific examples.

Veterans Affairs

Veterans Benefits Administration – Provides $3.3 billion for information technology, including $1 billion for staff pay, $1.8 billion for operations and maintenance, and $494 million for systems development, modernization, and enhancement. This DME funding is 2-year money available through FY 2014 but requires the VA Secretary or CIO to submit to Congress a certification of the amounts to be obligated for each project. Further, Congress requires approval of any transfers between the three funding sub-accounts or individual project funding increases/decreases of more than $1 million.
No more than 25% of any joint DoD-VA integrated electronic health record (iEHR) may be obligated until the DOD–VA Interagency Program Office gets the approval of both Congressional Appropriations Committees on the planned costs, timelines, acquisition, etc.
Of the $60.5 billion appropriated for veterans compensation and pension benefits programs no more than $9.2 million “shall be reimbursed to ‘General operating expenses, Veterans Benefits Administration’, ‘Medical support and compliance’, and ‘Information technology systems.’”
$115 million for the VA’s the Office of Inspector General, to include information technology costs and for constructing, altering, extending, and improving any of the facilities.
Only upon approval of Congress may the VA Secretary transfer funds to/from the VA’s ‘‘Information technology systems’’ account to/from the ‘‘Medical services’’, ‘‘Medical support and compliance’’, ‘‘Medical facilities’’, ‘‘General operating expenses, Veterans Benefits Administration’’, ‘‘General administration’’, and ‘‘National Cemetery Administration’’ accounts.
Department of Justice, General Administration, Justice Information Sharing Technology receives $22 million, the National Protection and Programs Directorate, United States Visitor and Immigrant Status Indicator Technology receives $279 million, and the Office of Health Affairs receives $132.5 million, of which $85 million is for the BioWatch program.

Defense

None of the DoD appropriation can be used for new multiyear procurement contracts for any systems or components if the value of the multiyear contract would exceed $500 million, unless specifically provided in the bill. A cursory review finds these are predominantly weapons systems, with some mention of commercial SatCom for naval vessels.
The DoD provisions further stipulate that no multiyear procurement contract can be terminated without 10-day prior notification to the congressional defense committees.
Defense Intelligence Agency funds may be used for the design, development, and deployment of General Defense Intelligence Program intelligence communications and intelligence information systems for the Services, the Unified and Specified Commands, and the component commands, unless otherwise stated.
$12 million for mitigation of environmental impacts on Indian lands resulting from DoD activities, including training and technical assistance, related administrative support, the gathering of information, documenting of environmental damage, and developing a system for prioritization of mitigation and cost to complete estimates for mitigation.
None of the funds in the Act may be used for research, development, test, evaluation, procurement or deployment of nuclear armed interceptors of a missile defense system.
$519 million in multi-year funds for Cooperative Threat Reduction for the elimination and secure transportation/ storage of nuclear, chemical and other weapons; to prevent the proliferation of weapons, weapons components, and weapon-related technologies, etc.
RDT&E New Starts Justification – Funds appropriated under ‘‘Research, Development, Test and Evaluation, Defense-Wide’’ for any new start advanced concept technology demonstration project or joint capability demonstration project may only be obligated 45 days after a report, including a description of the project, the planned acquisition and transition strategy and its estimated annual and total cost, has been provided in writing to the congressional defense committees. (The Secretary of Defense may waive this restriction on a case-by-case basis.)
Funds appropriated for research and technology for programs of the Office of the Director of National Intelligence shall remain available until the end of fiscal year 2014.

Homeland Security

Federal Emergency Management Agency receives $35 million for the National Urban Search and Rescue Response System, $22 million shall be for capital improvements at the Mount Weather Emergency Operations Center, and not less than $5 million directed to the modernization of automated systems.
United States Citizenship and Immigration Services (USCIS) receives $112 million for the E-Verify Program.
DHS’s National Protection and Programs Directorate, Infrastructure Protection and Information Security receives $1.1 billion, with $328 million slated for Network Security Deployment and $218 million for Federal Network Security to establish and sustain essential cybersecurity activities, including procurement and operations of continuous monitoring and diagnostics systems and intrusion detection systems for civilian federal computer networks. $213 million (40%) of the combined $546 million is tagged as multi-year funding through FY 2014.

On to the Senate

According to recent media reports, the Senate leadership will go along with the House leadership’s decision to set fiscal 2013 spending at levels reflecting the $85 billion in spending cuts through sequestration. Time will tell whether anyone in the Senate will seek to shift money for agencies within the top-line spending number specified by sequestration. Top agencies on the Senate list to receive similar funding flexibilities include Homeland Security, Justice, State and Transportation, according to reports.

If enacted, H.R. 933’s funding of the DoD would put dollars behind the priorities and policies outlined in the FY 2013 National Defense Authorization Act signed in January. For more details on the acquisition and IT implications of the Defense Authorization bill check out our NDAA analysis report.

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Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWin FIA. Follow me on Twitter @GovWinSlye.

House Approves FY 2013 Continuing Resolution; Senate Likely to Approve

Thu, 07 Mar 2013 09:26:00 -0400

Some said it couldn’t be done, but there’s anecdotal evidence that Congressional bipartisanship exists. On March 6 the House passed a Continuing Resolution bill (H.R. 933) that would fund the government through the rest of FY 2013, and according to the Washington Post, there is optimism that the measure will pass in the Senate (with some amendments). The good news is that we may be avoiding yet another drama-filled “fiscal cliff” scenario. The bad news is that this version of the CR does not eliminate sequestration.

Most of the funding is subject to sequestration, which brings the total discretionary budget down to $982 billion. Although the CR sets budgets for civilian agencies at the FY 2012 levels, it specifies funding levels for the Department of Defense and Department of Veteran’s Affairs, providing some cover by mitigating the impact of sequestration on critical areas of national security. According to the House Committee on Appropriations, several of these specifically-funded areas within DoD and VA will be exempt from sequestration (see chart below):

Source: House Committee on Appropriations

The bill also allows DoD to transfer $4 billion in working capital funds to support high priority military functions (except construction).

There were other provisions intended to mitigate the impact of sequestration for some civilian agencies active in national security, homeland security, emergency response and law enforcement, including funding to protect:

· Nuclear weapons modernization for continued safety, security and reliability of our nuclear stockpile

· Staffing at Customs and Border Protection

· Staffing, cybersecurity and surveillance at the FBI

· Embassy security

· Wildfire suppression funding for Department of Interior

· New weather satellites to support weather warnings and forecasts

H.R. 933 also includes some effort to protect state funding by establishing amounts for advance Q1 FY 2014 grant payments, such as:

· Department of Labor, Office of Workers Compensation Programs, Special Benefits for Disable Coal Miners - $40M

· Health and Human Services, CMS Medicaid grants to states - $106B

· Health and Human Services, Administration for Children and Families, Payments to States for Child Support Enforcement andFamily Support Programs’ to states - $1.1B

· Health and Human Services, Administration for Children and Families, Payments for Foster Care and Permanency to states - $2.2B

· Social Security Administration, Supplemental Security Income Program’ - $19.3B

There will be quite a bit of reporting going on as well. Within 30 days of enactment, civilian agencies (this excludes VA) must submit spending plans at the Program, Project and Activity (PPA) level for FY 2013 to the House and Senate Appropriations Committees. One glaring omission, either because it’s simply not there or reader error (legislation is not the easiest thing to read) is a clear definition of PPA. Starting May 1, 2013, OMB must submit monthly reports detailing all obligations incurred by civilian agencies (excludes VA), by account and with comparisons to FY 2012, to the House and Senate appropriations committees.

This measure must still pass the Senate but indications are that, although the Obama administration and Democrats are not over the moon about the bill, they will likely support it. But like a twisted version of Pavlov’s dogs, I think agencies and contractors alike have been trained to think the worst until the signature is on the page.

Sequestration Effects on State and Local Opportunities

Wed, 27 Feb 2013 08:49:00 -0400

Several state programs could be in jeopardy beginning March 1^st if the sequestration takes place. Programs that rely more heavily on grant funding through FEMA, such as emergency preparedness and disaster recovery, are more likely to be affected. Although, at this point, it is hard to determine the long-term effects; sequestration could potentially stunt any progress that has been made on these programs.

As previously highlighted by Kristin Howe, sequestration will have an impact on the public safety sector. Funds that have been set aside for relief of disasters such as Hurricane Sandy could be cut including the Disaster Relief Fund (DRF). In addition, state 911 programs and emergency communication plans could also feel the aftermath of sequestration. States including: Massachusetts, California, Colorado, Michigan, Oregon, Pennsylvania, Virginia, Kentucky, Florida, Kansas, New Hampshire, North Carolina, South Dakota and New Jersey have all been making diligent efforts to implement or upgrade current 911 technologies to Enhanced or Next Generation systems. Some of these projects have already been put on hold in order to secure additional funding. Sequestration could potentially prolong that process.

Cuts to homeland security could diminish funds to the Assistance to Fire fighters Grant (AFG) program as well as state and local law enforcement grants from the Justice Department such as the Justice Assistance Grant (JAG). These cuts could harm a variety of information sharing initiatives taking place in Arizona and Kansas as well as offender management projects taking place in Kansas, Oregon, Connecticut and Vermont.

Analyst’s Take

It will be interesting to see how sequestration could affect the extent to which localities move forward with projects. Many localities who have expressed desire to update 911 systems and emergency communication capabilities are prolonging their efforts in order to align with the state. Sequestration may diminish trickling funds and localities may instead look for opportunities to piggyback off statewide contracts.

Vendors should also note that there are other ways to get around DHS grant funding for projects such as NG911 and emergency communications. While there are other grant options available for NG911, many state agencies may choose to rely on increased surcharge collections to obtain additional funding.

GovWin IQ subscribers can read further into sequestration here. Non-subscribers can gain access with a GovWin IQ free trial.

New York's Medicaid woes

Thu, 14 Feb 2013 15:21:00 -0400

On February 5, the U.S. House of Representatives’ Committee on Oversight and Government Reform released a report detailing billions of federal tax dollars wasted annually by New York’s Medicaid program. While the report acknowledges that the Centers for Medicare and Medicaid Services (CMS) has not done enough to protect federal tax dollars from being misspent, the committee found that the worst abuser of the Medicaid program continues to occur in New York; its program is estimated to lose 10 percent of its Medicaid spending on fraudulent claims, and another 20 to 30 percent on unnecessary services. New York spent $54 billion in 2012 alone on Medicaid – the highest of any state in the country.

The report lists several contributing factors to high Medicaid costs in the state, including:

Poor program oversight at the state and federal level
Rampant waste, fraud, and abuse
An antiquated, complicated payment methodology
Medicaid funding-driven special interest groups
Corruption and cronyism

A growing legal industry in New York is Medicaid estate planning, which involves transferring financial assets to trust funds or dependents to qualify for Medicaid. Another form of abuse includes “spousal refusal” – a sick person can transfer his or her assets to a healthy spouse, who can then invoke “spousal refusal” to decline financial support, qualifying the sick for Medicaid services. While other states do not openly acknowledge this practice, the state of New York provides a form letter for citizens.

With federal reimbursement for Medicaid spending open-ended, what incentives are in place for states like New York to hold themselves accountable to taxpayer dollars? The committee talked about New York’s attitude of “If it moves, Medicaid it,” which explains the $15 billion in development center payments alone over the past two decades, five times greater than the actual cost of providing services. The report calls for a full independent audit of the state’s Medicaid program; audit and budget expert oversight; adhering to eligibility thresholds; reducing excessive federal payments; estate recovery; and limiting executive compensation. With New York leaning toward participating in Medicaid expansion, cost control measures must be taken now before an even larger chunk of taxpayer dollars goes to a corrupted, bloated system.

More information on New York’s Medicaid program can be found here. Non-subscribers can gain access with a GovWin IQ free trial.

Navy Announces IT Budget Cuts, but Congress Seems Willing to Fund Priorities

Tue, 12 Feb 2013 16:31:00 -0400

Since Congress and the White House postponed the federal budget sequestration deadline from January to March there has been a flurry of reports around how the Department of Defense (DoD) is trimming its budgets in anticipation of either sequestration being enacted in March or Congress passing a defense budget for the remainder of fiscal year (FY) 2013 with comparable cuts. The Department of the Navy has been very publicly proactive in delineating its budget cutting plans, but there may be some hope for softening the blow in the latest defense authorization bill.

In a recent media report the Navy is anticipating further budget pressures of either sequestration or reduced appropriations by instituting multiple stages in cutting spending. In a memorandum issued by Adm. Jonathan Greenert, Chief of Naval Operations, on January 25^th, the immediate cuts will impact primarily Operations and Maintenance (O&M) activities but also covers non-deployment-related training and education as well as non-mission-essential information technology and equipment. The O&M cuts could have IT implications by constricting the dollars available for ongoing maintenance of Navy legacy IT systems.

Efforts by the Navy to trim its IT spending have been ongoing in recent years and are expected to continue into the foreseeable future. Naturally, this will significantly impact federal contractors supporting the Navy. In our most recent annual 5-year federal IT forecast covering FY 2012-17 we project that Navy’s contracted IT compound annual growth rate to be -3.4%, making it one of the most suppressed of the four DoD entities, second only to our forecasted CAGR for Defense-wide/OSD at -3.5%. However, the FY 2013 National Defense Authorization Act, enacted at the beginning of January, contained tangible, congressionally authorized spending increases in the Navy’s Procurement, Research and Development (RDT&E), and even O&M budgets that have the potential to soften the blow. (See chart below)

In our analysis of the federal IT market implications of the FY 2013 NDAA we identified several areas of IT impact, including IT procurement, cybersecurity, network operations, and software use and licensing. The impact is not all negative from a spending perspective. Congress is prepared to fund key IT priorities, but competition is likely to be intense as funding shifts.

While uncertainty remains as to whether Congress and the White House will agree on appropriations for the remainder of FY 2013 that are in line with the authorizations in the NDAA, the fact that the president signed that bill introduces a glimmer of hope – especially since much of the NDAA increases (and decreases) seek to align the DoD budget with the latest defense strategy developed under Obama.

From Fiscal Cliff to Fiscal Roller Coaster

Fri, 04 Jan 2013 11:54:00 -0400

After a protracted pre- and post-election battle, President Obama and Congress have reached an agreement to avoid what is probably the most telegraphed punch in history: the “fiscal cliff.” But before we get too excited (whether it be because they were able to accomplish much of anything in this session of Congress or because we could possibly be retiring the annoyingly overused phrase “fiscal cliff), let’s take stock of what’s actually happened and what it means for federal contractors.

The most significant outcome of this legislation (aka the American Taxpayer Relief Act of 2012), for citizens is that there will be tax increases for households with taxable income over $450,000, tax stability through extended tax relief programs for everyone else, and an extension of unemployment benefits. The most significant outcome for government contractors: you have to wait another 2 months to know if and how sequestration will occur. While most are glad to see the players reach any kind of agreement, the general consensus is that this bill avoids the cliff but puts the government on a roller coaster. February and March will see agencies heading up yet another steep hill as Congress and the Administration work through yet another debt ceiling debate, sequestration rears its head again on March 1, and the current FY 2013 Continuing Resolution expires on March 27. March 27 is also the date that the spending reductions must be evaluated and implemented unless other legislation is enacted.

The American Taxpayer Relief Act of 2012 includes two sections under the sequestration provision:

1. Postpones the sequester until March 1 and adjusts the discretionary caps down about $4B for FY 2013 at the time that the President triggers sequestration. The original post-sequestration discretionary caps were $546B for security agencies, and $501 for non-security. This new bill adjusts those to $544B and $499B respectively. For FY 2014, caps are reduced from $556B and $510B to $552B and $506B, a total of $8B.

Note that “security” and “non-security” agency categories were defined differently for the original caps; security agencies included DoD, DHS, VA, State and Other International Programs and the National Nuclear Security Administration (NNSA). After the failure to identify deficit reductions, the definition of “security” agencies was revised to budget function 50- National Defense.

2. Allows the transfer of retirement funds to Roth IRAs without distribution.

Considering the $109B in cuts that would happen each year for the 9 months of FY 2013 that would be impacted, that equates to approximately $12B per month. By reducing discretionary caps and increasing tax revenue generated from retirement transfers, the government delay effectively pays for the two-month delay by this combination of cuts and revenue increases.

Impact on Contract Spending

Table 1. below provides a quick perspective on the potential impact of this sequestration delay on the contracting community.

Table 1

It’s clear that this bill is not aimed at addressing sequestration, but as we’ve been speculating for awhile now, “sequestration-like” cuts will happen whether it’s through formal sequestration or more targeted cuts through the appropriations process. By kicking the can down the road a bit, sequestration coincides with the expiration of the current CR, which is an opportune time to make adjustments.

As agencies wait an additional two months for the ax to fall, they will continue to procure, albeit not at the same level as needed or previously planned in some cases. Sequestration does not impact dollars that are already obligated, so agencies continue day-to-day operations and obligate dollars to effectively “lock in” what they can while they can. A December 20 memo from Defense Secretary Leon Panetta asserted that while they are planning for sequestration, the immediate impact would be minimal. For contractors, this could mean that effects of budget cuts wouldn’t necessarily be deeply felt until summer (though most contractors have already started to see the impact of the uncertainty surrounding sequestration).

In the meantime, contractors should be hustling to determine the worst case scenario for their affected programs and talking to agency POCs to learn:

Which budget accounts fund their contracts.
Potential percentage cuts to the relevant budget accounts.
The priority placed on the contract and/or contract options and modifications to learn if they will likely be funded even under sequestration.
The possibility of moving options, modifications, task orders, etc. to be funded in the second quarter of FY 2013 to avoid the sequestration ax.

While it is a relief that some of the larger issues have been addressed with this legislation, it does not change the height of the cliff for contractors; it simply buys them more time to find a better fitting parachute.

The Potential Impact of Sequestration on RDT&E Spending in the U.S. Army

Wed, 24 Oct 2012 10:13:00 -0400

The U.S. Army potentially faces sequestration related cuts to its FY 2013 RDT&E budget of $954M. In this blog we take a look at home these cuts may affect RDT&E spending on Army C2 programs, weapons platforms, and more traditional IT projects. Last week in this space, I posted a blog on the potential impact of sequestration on IT programs at DISA. This week I’d like to turn to the potential impact on IT programs at the U.S. Army. In the name of consistency, I’ll follow the same format used in the previous blog and present data and information from the same sources, these being the FY 2013 Army Working Capital Fund and FY 2013 DoD Research, Development, Test, and Evaluation (RDT&E) Budget Request. Again, my purpose in clarifying where sequestration cuts may be felt the deepest is to relieve some of the anxiety surrounding sequestration and clarify what the issues are that leaders at the Army may be struggling with when it comes to deciding where the sequestration axe should fall.

Sequestration and the Army’s Working Capital and RDT&E Funding Sources

Those familiar with the Army Working Capital Fund (AWCF) may wonder why I chose to take a look at it, given the fact that it contains very little of the Army’s IT spending. The reasons are straightforward. First, FIA’s September 2012 analysis of the Obama Administration’s detailed budget account report on the impact of sequestration revealed that $178M of the AWCF was potentially vulnerable to sequestration cuts. Second, after having examined the Defense-Wide Working Capital Fund and finding just how important that fund is to DISA, I wanted to see if the AWCF was equally important to IT spending in the Army. The good news is that the AWCF is not as important to Army IT spending as the DWWCF is to DISA. In fact, the only IT program of note to be found in the AWCF is the Logistics Modernization Program (LMP). So, while the potential impact of sequestration on the LMP might be important to L-3 Services, the company currently supporting the program under contract W91QUZ-09-D-0039, the impact on the wider IT contracting community is negligible.

This brings me to the Army’s portion of the RDT&E budget, the sequestration of which has far wider repercussions. Sequestration cuts $954M, or 10.7%, from the total FY 2013 Army RDT&E budget request of $8.9B. The $8.9B is the figure if an FY 2013 budget is passed. The “if an FY 2013 budget is passed” part of the statement above is important here because if an FY 2013 budget is not passed then sequestration cuts would be based on funding at the FY 2012 level, as required by the Continuing Resolution in place until March 2013.

In the Army’s case, FY 2012 RDT&E funding was $8.7B, including OCO funding. Based on the FY 2013 request, the Army expected its RDT&E funding to increase by $200M. This means that it is actually more favorable for the Army if sequestration cuts would be based on the FY 2013 requested RDT&E funding level of $8.9B, rather than on the FY 2012 RDT&E funding level of $8.7B. Given the fact that Congress is highly unlikely to pass an FY 2013 budget before 2 January 2013, the Army has $200M less in RDT&E funding headroom to bear the brunt of sequestration cuts. In short, sequestration cuts to the Army’s RDT&E funding would hurt more based on FY 2012 funding than they would have if an FY 2013 budget was in place.

What is Vulnerable to Sequestration at the Army?

Army RDT&E money funds research and development related primarily, but not exclusively, to command and control systems and weapons platforms. The table below lists the top 10 (by funding) RDT&E funded programs/offices at the Army, based on FY 2012 funding levels. These programs represent a total of $2.7B in Army RDT&E spending in FY 2012. Based on what readers know of strategic priorities at the Army, which of these programs do you think the Army could afford to cut if sequestration became a reality?

For my part, I’d like to draw attention to three programs on this list and offer comments on where these systems fit into the Army’s IT ecosystem.

High Performance Computing Modernization – Slated to receive $228M (the FY 2012 number based on the CR) in RDT&E funding, the HPCM program would likely play a critical role in enabling the Army’s use of big data tools. Because traditional computing platforms cannot handle the volume, variety, and velocity of data to be processed, the Army and other DoD services will likely to turn to high performance computing for solutions. If this program is not funded it could hamstring efforts the Army’s efforts to use the big data analysis tools that it requires.
Warfighter Information Network-Tactical (WIN-T) – The WIN-T network is central to the Army’s efforts to drive capabilities to the tactical edge. These are capabilities that the warfighter counts on so cutting funding to this program could have life and death consequences.
Global Combat Support System (GCSS) – The GCSS is an enterprise level ERP system that provides a comprehensive COTS-based logistics solution to combatant commanders. So long as American lives are at stake in far-flung theaters of operation, the GCSS will be a required system, but this might not be enough to save it from cuts given the bad taste that years of DoD ERP cost overruns have left in the mouth of Congress.

There are of course other more traditionally oriented IT programs in the RDT&E budget that could experience cuts related to sequestration. These programs include Army Tactical C2 Hardware & Software ($94M in funding at FY 2012 levels) and Distributed Common Ground/Surface Systems (DCGS-A) ($32M in funding at FY 2012 levels). However, it is difficult to see much money, in percentage terms, being cut from these program budgets.

Sequestration in Perspective

When it comes to sequestration at the Army, it is my opinion that the potential impact is likely to be focused in the C2 and weapons platform space. In general, the more traditionally oriented IT programs are less visible, at least as far as the size of funded accounts is concerned. This said the CR unfortunately puts the Army in a weaker position to withstand cuts to its RDT&E funding, if they materialize.

Budget Sequestration May Be Mostly Bluster, but Still Cause Damage

Mon, 01 Oct 2012 09:30:00 -0400

The topic of impending federal budget sequestration come January 2013 has nearly dominated the discussion of the current state and near future of federal contracting for the last several months. All quarters across industry and government alike almost uniformly are decrying the potential highly disruptive impact of across-the-board budget cuts would be to federal programs and their supporting contractors, but nothing has been done yet to avert the event. And that lack of action is telling. Recent comments by a key defense official lead me to believe that this whole thing is more about symbolism rather than substance, regardless of the collateral damage.

Sequestration came to prominence after the Senate Joint Select “Super” Committee failed to produce the requisite reductions laid out in the Budget Control Act (BCA) of 2012. As a result, budget sequestration is scheduled to automatically take effect in January unless averted through further action by Congress and the White House.

At a recent industry event I attended, Robert F. Hale, Under Secretary of Defense and DoD Chief Financial Officer discussed how the military was looking at financing their mission in tighter budgetary times. Naturally, one of the big issues that arose in the discussion was the impact of the impending sequestration. Hale responded that he hoped sequestration would be averted and that such a sequestration would have very disruptive impacts to the DoD. Throughout the event, when the specifics of sequestration arose from the interviewer or from the audience Hale stayed on message: hope for aversion, disruptive if it occurs. Several times Hale put the onus on Congress to “pass deficit reduction legislation that the president would sign.” Clearly, the Pentagon is speaking with the larger voice of the Obama Administration with regard to sequestration.

But Hale also mentioned that at this time the DoD was not constructing any “what if” contingency plans to deal with the prospects of sequestration and that is the part of the message that leads me to draw the conclusion that, in the end, he not only hopes for averting sequestration but that he expects it to be averted. Given the presumed lead time it would take to complete sequestration planning at DoD it is hard for me to conclude much else.

There’s more that supports this conclusion. During the Q&A portion of the event an audience member who works for a civilian agency mentioned that he too had not seen any “what if” planning at his agency or elsewhere and asked when we should begin to see such planning to begin. Hale’s response was again consistent: that he would like to avoid sequestration, they prefer avoiding the planning for it, but, at some point they will need to plan. Hale said he had no specific time table but that he would expect nothing until Congress returns from the fall election in mid-November. And there it is.

Implications

While the current law of the land would require sequestration in January the political realities are such that many (most?) expect the leadership to dodge the sequestration bullet in the eleventh hour, even if that means punting the ball down field on the calendar into the next Congress. That is not unusual. Both the House and Senate have now passed the Continuing Appropriations Act (HJRes117) which will fund the federal government through March 27, 2013 – the first half of fiscal 2013. The bill is on the president’s desk and is expected to be signed soon. With that, the Department of Defense (DoD) will go into fiscal year 2013 continuing at the base budget they had for FY 2012.

Yet, industry has been raising the issue for several months of the real impacts that the specter of impending sequestration is having on the federal contracting environment, one of which is the requirement under the Worker Adjustment and Retraining Notification (WARN) Act for federal contracting firms to give 60-day notices to their staff in the event of impending layoffs. Hale encouraged federal contractors to follow the Labor Department’s guidance on this – which effectively cautions firms against issuing “overly broad” notices and that the absence of details on the impact of sequestration on specific government contracts would lead industry make judgments that are “speculative and unforeseeable.” Yet, Hale acknowledged that firms would also have their own inside legal counsel reviewing the law and presenting their own internal guidance.

So while Hale acknowledged that sequestration (as well as other significant budget cuts) would be disruptive to DoD’s mission and strategy, when asked he was not willing to offer his estimation of the current impacts of the threat of impending sequestration – like foregone contract options, reduced orders, canceled procurements, pushed schedules, etc. That will take time to assess and it is unlikely that we will have a clear understanding of the impacts of so-called “soft sequestration” until the historical data is in.

HHS Sequestration Impacts States

Tue, 25 Sep 2012 10:32:00 -0400

The Office of Management and Budget recently released a report on the impact of potential sequestration for each agency as required by the Sequestration Transparency Act of 2012 (STA). The Department of Health and Human Services had some significant cuts that effect both HHS and state governments.

The STA, signed by Obama on August 7, gave the administration 30 days to identify, for each account to be sequestered, estimates of the “level of sequestrable budgetary resources and resulting reductions at the program, project, and activity (PPA) level based upon the enacted level of appropriations.” It clearly was impossible for agencies to pull together information down to the activity level within 30 days and the report states that “the sheer volume of data presents administrative challenges that require additional time for OMB to address.”

The OMB report, released a week after Congress’ deadline, provides only a bit of information on the impact of sequestration. The Budget Control Act (BCA) of 2011 established a uniform percentage reduction across accounts, specifically stating that “except as otherwise provided, the same percentage sequestration shall apply to all programs, projects, and activities within a budget account.” The percentage applied for non-defense mandatory spending is 7.6% and 8.2% for discretionary spending.

HHS Sequestration Exemptions

As a critical social services provider and funder, the Department of Health and Human Services had some significant programs that are exempt from sequestration; but it likewise has some programs that will experience high sequestration. The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) as amended, identifies programs exempt from sequestration and subject to special rules. The percentage cuts in OMB’s sequestration report, and the identification of exempt and non-exempt accounts, reflect the requirements set forth in the BBEDCA. The administration cannot choose which programs to exempt, or what percentage cuts to apply. Notable exemptions (>$200m) to budget accounts for HHS are shown below:

State governments will be impacted by sequestration at HHS. Although some grant accounts are fully or partially exempt, such as State Medicaid Grants, others are sequestrable, such as:

HHS Child Care and Development Block Grant
HHS Social Services Block Grant
HHS Affordable Insurance Exchange Grants
HHS State Grants and Demonstrations

Notable sequestration amounts per budget account (>$200m) for HHS are shown below:

Unfortunately for contractors that are trying to prepare for sequestration, this report provided few details into specific program impacts. How and when HHS will make these cuts down to the program, project, and activity (PPA) level is still a mystery and assumedly on-going work of the administration as OMB said it would need more time to produce. Stay tuned …

Looming Sequestration?s Potential Impact on the Air Force and Navy

Tue, 25 Sep 2012 09:34:00 -0400

The hot topic of budget sequestration that has been simmering all summer continues to heat up. We have been focusing efforts this week looking at the latest Office of Management and Budget (OMB) report that was released last Friday outlining the impact of potential budget sequestration on federal agencies. This entry will focus on defense – namely Air Force and Navy.

The OMB report, required under the Sequestration Transparency Act of 2012 (STA) signed by the President in early August, was intended to provide Congress with an impact assessment at the program, project, and activity (PPA) level for each agency. What OMB was able to provide, albeit a week past the STA deadline, was a much more basic assessment at the budget account level, including the top-line FY 2013 reductions by budget account and sequester/exempt classifications by budget account.

The Budget Control Act (BCA) of 2011, the law that started all the latest sequestration wrangling, established a uniform percentage reduction across “all programs, projects, and activities within a budget account” unless otherwise exempted. According to the OMB report, under the assumptions outlined by the STA, the sequestration would result in a 9.4 percent reduction in non-exempt defense discretionary funding. Sequestration would also require a 10 percent reduction to non-exempt defense mandatory programs. These rates would be applied to defense accounts related to the FY 2012 discretionary base of $580 billion and mandatory base of $679 million respectively.

OMB provides very limited detail about each budget account in the report. Yet, there is still some useful information that shows how sequestration would impact these two departments.

Notable Exemptions and Sequestration Amounts

The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) as amended, identifies programs that are exempt from sequestration and subject to special rules. Further, an administration cannot choose which programs to exempt or what percentage cuts to apply. The percentage cuts in OMB’s sequestration report and the identification of exempt and non-exempt accounts reflect the requirements set forth in the BBEDCA.

The notable exemptions (>$200m) and sequestration amounts (>$200m) per budget account for DHS are shown below.

Dept./Bureau	Budget Account	Total Budget Amount ($M)	Exempt Amount ($M)	Sequestration Amount ($M)
Air Force
Military Personnel	Military Personnel, Air Force	29,971	29,971	-
	National Guard Personnel, Air Force	3,147	3,147	-
	Reserve Personnel, Air Force	1,747	1,747	-
	Medicare-Eligible Retiree Health Fund Contribution, Air Force	1,442	1,442	-
	Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Air Force	277	277	-
Operation and Maintenance	Operation and Maintenance, Air Force	47,056	1,659	4,267
	Operation and Maintenance, Air National Guard	6,388	254	577
	Operation and Maintenance, Air Force Reserve	3,501	84	321
Procurement	Other Procurement, Air Force	24,204	525	2,226
	Aircraft Procurement, Air Force	21,936	550	2,010
	Missile Procurement, Air Force	7,380	275	668
Research, Development, Test, and Evaluation	Research, Development, Test and Evaluation, Air Force	35,658	6,758	2,717
Revolving and Management Funds	Working Capital Fund, Air Force	24,963	24,883	8

Dept./Bureau	Budget Account	Total Budget Amount ($M)	Exempt Amount ($M)	Sequestration Amount ($M)
Navy
Military Construction	Military Construction, Navy and Marine Corps	3,618	538	290
Military Personnel	Military Personnel, Navy	28,341	28,341	-
	Military Personnel, Marine Corps	14,316	14,316	-
	Reserve Personnel, Navy	2,037	2,037	-
	Medicare-Eligible Retiree Health Fund Contribution, Navy	1,409	1,409	-
	Medicare-Eligible Retiree Health Fund Contribution, Marine Corps	880	880	-
	Reserve Personnel, Marine Corps	672	672	-
Operation and Maintenance	Operation and Maintenance, Navy	50,979	5,330	4,291
Procurement	Other Procurement, Navy	7,656	289	692
	Aircraft Procurement, Navy	23,837	5	2,240
	Shipbuilding and Conversion, Navy	22,774	-	2,141
	Procurement, Marine Corps	3,943	45	366
	Weapons Procurement, Navy	3,926	4	369

Research, Development, Test, and Evaluation	Research, Development, Test and Evaluation, Navy	19,120	221	1,777
Revolving and Management Funds	Working Capital Fund, Navy	25,488	25,488	-

Implications

As was widely expected across the industry, the key areas impacted by sequestration would be Operation and Maintenance and the procurement of aircraft, shipbuilding and weapons systems. Research, Development, Test and Evaluation activities would also be significantly impacted. Personnel areas are exempt.

While it will take time for the details to fully come to light on which specific programs would be impacted, if sequestration were to occur what it would mean is a natural disruption to those O&M and procurement contracts. In addition, some contracts that may duck the sequestration bullet in these areas may experience collateral damage of delays, postponements and scope reductions. At this point, without detailed PPA information, that may be as precise as we can be.

The Numbers are In: More Details About Sequestration Emerge

Mon, 17 Sep 2012 11:42:00 -0400

The federal contracting community has been waiting with bated breath for more details to determine the impact of sequestration on their businesses. Although the Budget Control Act (BCA) of 2011, which brought sequestration to the table, provided a (fairly) clear description of the dollar impact at the aggregate level, the impact at the program level is still unclear. The devil is in the details, so as the true implications of sequestration became more clear, and the deadline closer, Congress became more concerned with how the sequestration cuts would be implemented. To force the administration to provide those details, they passed the Sequestration Transparency Act (STA) which Obama signed on August 7. Potentially the shortest piece of legislation on record (a whopping 2 pages), the STA gave the Obama administration 30 days to report, for each account to be sequestered, estimates of the “level of sequestrable budgetary resources and resulting reductions at the program, project, and activity (PPA) level based upon the enacted level of appropriations.”

My team of analysts and I, who have analyzed the federal budget account-by-account, literally laughed out loud at the idea that the administration could pull together that amount of information within 30 days. We wondered if they could even find the people who knew the people who knew where the data was within 30 days. The report acknowledges this challenge by stating that, “Regularizing reporting across different budget accounts and agencies requires the resolution of many definitional questions, and the sheer volume of data presents administrative challenges that require additional time for OMB to address.”

OMB Report Applies BCA Percentages to Major Budget Accounts

Released a week after the September 7 deadline, the report sheds some light onto the impact of sequestration, but not much. The BCA established a uniform percentage reduction across accounts, specifically stating that “except as otherwise provided, the same percentage sequestration shall apply to all programs, projects, and activities within a budget account.”

Those percentages vary, depending on the sequestration category as seen in the chart below:

Key Areas of Sequestration and Exemption

Although the number crunching is far from over, OMB’s report does shed some light into areas that will be subject to sequestration and which areas will be exempt:

Preliminary analysis of the data shows a few trends:

· Defense hit hard, but small elements of major accounts have been shielded. The relative size of DoD budget accounts make them very large targets, but there are elements of the major accounts that are under exemption. There are several accounts in which DoD exempts nearly as much (or more) as it sequesters, such as:

Defense-wide: Defense Health Program, Operation and Maintenance, and Research, Development, Test and Evaluation
Navy: Operation and Maintenance
Army: Operation and Maintenance and Procurement
Air Force: Research, Development, Test and Evaluation

· Agencies’ working capital funds are largely protected. In most cases, all of the vast majority of working capital funds have been exempted. Some contract work is funded from these accounts.

· Fund accounts with economic implications are largely exempted. Although not completely exempt, many of the accounts that support insurance and credit programs are exempt.

· Senate and House member compensation is exempt. Although general salaries and expenses are sequestrable, compensation for Senate and House members, approximately $127 million is exempt.

· Contractors and government employees will take hits. With the exemption of military personnel compensation, employees of most agencies will likely be impacted as a large percentage of most Salaries and Expenses accounts are sequestrable. Accounts funding general operations and facilities management are largely sequestrable so contractors will be impacted.

· States (and other grant holders) will be impacted. Although some grant accounts are fully or partially exempt (such as State Medicaid Grants), others are sequestrable, such as:

HHS Child Care and Development Block Grant
HHS Social Services Block Grant
HHS Affordable Insurance Exchange Grants
HHS State Grants and Demonstrations
HUD Homeless Assistance Grants
DOT Capital Investment Grants

What’s Next?

The most glaring omission from this report and previous discussions is implementation. How will agencies execute these cuts, especially when they will occur after the fiscal year has already started (and under a continuing resolution)? Sequestration is not a new concept so OMB likely has plans for implemention – they’re just not yet sharing them with us.

Clearly, most contracts are funded from defense and non-defense discretionary accounts, but the details provided do not yet allow for much insight into specific program impacts. OMB noted that additional time was needed to report on sequestrable funds at the PPA level, which is something that those contractors prepping employee pink slips would find of great interest. That data would allow for some level of mapping between sequestrable programs and contracts, and allow contractors to prepare themselves for the eventuality of sequestration or, at a minimum, mitigate the impact that the uncertainty has created.