- Focus business development efforts on programs already in full swing. These programs will have incumbents so be prepared to fight hard for a piece of them as support contracts come up for recompetition.
- Incumbents, prepare to defend yourselves. Stay in your customers’ back pockets.
- Concentrate on programs mandated by Congress and/or Executive Order, like business system modernization and data center consolidation. By law the DoD is required to fund these efforts, making them as close to a ‘sure thing’ as is available in this market.
- Seek out and capture work related to Programs of Record. Even PoRs are not guaranteed funding nowadays, but you can probably count on them being first in line if funding becomes available.
- Communicate how your solution or service can save money. Areas like systems automation, cloud computing, and, to an extent, big data, should be strong plays.
As industry observers, we've been somewhat trained over the last several budget cycles to expect to be taken to the edge of the fiscal cliff, only to be jerked back at the very last moment. Not this time. We're in Day 2 of the first shutdown since 1995, and with the debt ceiling debate coming within the next 2 weeks, it seems unlikely that government operations will resume before then. Contractors are caught in the cross-hairs, so we've assumed some of the most important things to know about government shutdowns, and recommendations for what to do now.
1. Agencies cannot incur obligations unless it’s otherwise authorized by law; but they have permission to incur obligations (but not payments) necessary for the “orderly termination of an agency’s functions,” and to perform “essential” duties. This includes:
• Medical care – Inpatient and emergency outpatient
• Activities to ensure continued public health and safety
• Continuance of air traffic control and other transportation safety functions
• Border and coastal protection and surveillance
• Protection of federal lands, buildings, waterways, and other property
• Care of prisoners
• Law enforcement and criminal investigation
• Emergency and disaster assistance
• Activities essential to the preservation of the money and banking system
• Ensure the production of power
• Maintain protection of research property1
2. Agencies are allowed to spend funds that DO NOT originate from annual appropriations.
Agencies such as GSA, which funds much of its operations with user fees, have funds to continuing running - at least for now. Obligations made from FY 2013 dollars, and programs funded with multi-year dollars can also continue to operate, however, they may be impacted by the lack of federal employees around to manage them if they are not considered essential services.
3. A government shutdown impacts everyone, but the scope of the impact depends on who you are. A federal hiatus impacts anyone relying on or providing federal services.
Non-exempt federal employees:
• Depending on the length of the shutdown, they would be furloughed with benefits intact
• Based on past shutdowns, Congress often comes back later and provides backpay
Agencies (depends on the length of the shutdown):
• Increased backlogs for transaction and process-heavy agencies like SSA, VA, and State
• Ripple effect from delayed programs
• Lost revenue from user fees collected for various services across government. Many agencies rely heavily on user fees and collections. The losses for lost revenue in the 1995 shutdown was the hundreds of millions when accounting for the ripple effect of lost revenue for states and small businesses that dovetail on some government services.
• Administrative costs associated with shutting down and ramping up – this was estimated in the millions for some agencies in 1996.
• Additional costs and penalties related to late payments to various entities, including contractors. Contractors can receive reimbursement for some costs incurred due to the shutdown.
• Lost productivity
• Loss of disillusioned employees who leave public sector employment
• The ability to continue to work depends on the nature of the contract and where the work is performed. Information and communications systems that support historically-defined “essential functions” will likely be operational (e.g. supporting defense communication networks, information security, systems related to critical infrastructure protection, etc.)
• Incrementally funded contracts not funded
• Delays in program solicitations and awards
• Part of contracts may be essential while others aren’t
• Delayed payments - vendors with products paid for in advance are likely unaffected but services not yet rendered will be halted
• Direct and indirect expenses due to the shutdown may or may not be recouped
• Impact on schedule and milestone-based performance metrics
• Potential need for employee layoffs – depends on length of the shutdown
• Services are limited – call centers not staffed; applications for visas, social security and veteran’s benefits are delayed; museums and national parks are closed.
4. Federal employees supporting essential functions will get paid after appropriations are passed.
However, it’s up to Congress to decide to pay non-essential furloughed employees once the shutdown is over. In past shutdowns, employees did receive backpay.
5. The number of essential employees can vary and may be more than you think.
It’s highly likely that more employees will be exempt than furloughed. During the 1996 shutdown:
• Roughly 64% of employees of agencies funded through the Commerce, Justice, State and Judiciary appropriations bill were NOT subject to furlough
• 53% of Interior’s employees were exempt
• 78% of employees under VA, HUD and the “Independent Agency” category were exempt.
6. Mandatory programs are exempt but will still be affected.
For example, Social Security payments will continue and field offices will be open, but they cannot issue or replace Social Security cards.
What Should Contractors Do?
Regardless of whether this shutdown lasts 10 days or 100 days, contractors should have a shutdown plan, because it’s likely that 2013 will not be last year that this occurs. Contractors should treat like its shutdown plan like a real project with a project owner, and resources assigned to identify and document how schedules, costs, employee status would be affected. Contractors should:
• Review contracts (funding, period and place of performance, statement of work, etc.)
• Classify contracts
• Stop work order
• Not essential but can be performed
• No stop work order but can’t be performed
• Separately document costs incurred specifically due to the shutdown
• Analyze the impact of:
• Award delays
• Task orders/Modifications being delayed
• Options not being exercised
• Work deadlines NOT being extended
• If your contracting officers have not been furloughed, talk to them NOW about the potential impact and solutions to mitigate impact once operations resume
• Identify possible reassignments for affected employees
• Develop contingency plans for subcontractors
• Collect outstanding receivables ASAP (if possible)
• Reevaluate/slim down your BD pipeline and Bid & Proposal (B&P) costs
The best thing contractors can do now is arm themselves with information about their customer’s plans and positions, and develop internal strategies to mitigate the impact of a prolonged shutdown.
Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about . Follow me on Twitter @GovWinPeterson.
Although I’ve mentioned a few large vendors doing business with Defense Agencies, I don’t mean to pick on them specifically. The reality is that big programs and high spending make big targets in this environment, and unfortunately the vendors attached to those programs tend to rise to the top of the statistical heap. All vendors whose contracts are funded through the O&M and RDT&E budget accounts are very likely to see reduced obligations in the years to come. The question is how much and what vendors will do to mitigate the impact.
- 50 states
- 366 metropolitan statistical areas (Nearly 3,000 cities and counties)
- Special districts, public universities, and independent school districts
- Project value: Funding identified by government agency
- Lead year(s): The year or range of years a project is budgeted
- Associated documents: The source from which the lead was generated (budget, CIP, article, etc.)
- Key contact(s): Primary and secondary contacts associated with a project
- Project ID: Government-specified project number or code
- Related GovWin IQ content: Tracked Opportunities, Bid Notifications and Lead Alerts
- Primary and secondary offerings
- Vertical classification
In Saint Charles, Missouri’s fiscal year (FY) 2013-2018 capital improvement plan (CIP), City Mayor Sally Faith establishes: “With limited revenue available, we must really focus on establishing what our priorities will be for the community going forward.”
While this may be a nicer way of saying “do more with less,” the city’s CIP prioritizes funding for 57 IT-related projects with an estimated cost of $10,000 or more. Deltek has captured these projects as Lead Alerts in the GovWin IQ database. Read more about Deltek’s new Lead Alerts below.
With nearly $8.6 million allocated for capital projects for the city’s police and fire departments, nearly half of the 57 projects captured by Deltek will appeal to vendors in the justice/public safety (JPS) marketplace.
Sample of police and fire department capital projects in Saint Charles, Mo.
While JPS projects take the cake, general government capital projects are plentiful. Top-dollar projects that span the six-year CIP include the provision of IT contract services ($1.1 million), routine city-wide computer replacements ($1.4 million) and software upgrades ($365,000). In total, the city’s CIP allocates nearly $3.65 million for IT projects.
Saint Charles is also investing to improve its geographic information system (GIS). This will be accomplished through updates to street and utility GIS data with street segments, pavement conditions, utilities, streetlights and other information, for which $80,000 is allocated. Similarly, $140,000 is assigned to provide an inventory of all sidewalks to comply with the Americans with Disabilities Act. An additional $200,000 is provided for orthorectification of the city’s aerial photography, which is part of the GIS.
The CIP also allocates more than $100 million for capital projects over the six-year CIP term, demonstrating that there is no shortage of opportunities awaiting the hands of government contractors. While many of these capital project values do not reach six figures, winning just one small-dollar project may be the stepping stone to a strong, lucrative relationship between a single locality and a single vendor.
Deltek’s GovWin IQ Lead Alerts
Deltek’s new GovWin IQ State and Local Lead Alerts give government contractors an edge when it comes to identifying new pre-RFP opportunities. Lead Alerts include the necessary information government contractors can use to make quicker decisions about pursuing an opportunity and act as the first alert that a state or local government has a need for a new product or service.
Lead Alerts highlight opportunities not captured through GovWin IQ’s traditional Tracked Opportunities, therefore expanding coverage and highlighting smaller-dollar projects and many more opportunities at the city, county, independent school district (ISD) and public university level. Read more about Lead Alerts here.
Federal IT managers appear more optimistic about future IT budgets over the next three years, than industry business development managers. Deltek interviewed 50 federal IT managers and surveyed 65 business development managers from the IT contracting community as part of its annual federal IT forecast research effort.
According to Deltek’s research, federal government demand for vendor-furnished information technology products and services will decline from $112 billion in FY 2013 to $102 billion in FY 2018. 74% of government respondents stated that they believed federal IT budgets would remain flat over the next three years, while only 49% of industry respondents thought budgets would stay flat. 34% said they would decrease.
Most (56%) federal IT managers stated that they are dealing with budget pressures by maintaining the same list of priorities, but re-scoping them. Industry respondents (55%) stated that their federal clients are re-scoping, but many clients are also eliminating projects (51%). Only 14% of government respondents cited project elimination as a tactic that they were using.
Shared services and strategic sourcing are projected to have the biggest impact of all acquisition and contracting initiatives on agency IT plans and their ability to achieve them, according to federal respondents. However, small business preferences and fixed-price vs. cost-plus contracting are likely to have the most impact on contractors’ businesses, according to industry respondents.
Industry respondents seem more optimistic about the impact of budget cuts on federal “hot button” technology areas, such as cloud computing, information security, data center consolidation, and big data. Industry respondents, on average, rated (3.2 rating) budget cuts as having some impact in these areas, but government respondents, on average, rated (2.4 rating) the impact as more severe, making it less likely for them to meet their goals in these areas. Deltek asked respondents to rate the impact of budget cuts in each technology area on a scale from 1-5, 1 being severe impact causing them not to meet any goals, 5 being no impact allowing them to meet all goals.
Federal contractors are combating these challenges by attempting to expand their federal client base, entering new vertical markets, and creating new products and services for existing vertical markets. Deltek predicts the federal information technology market will contract over the next few years, but at the same time offer contractors pockets of opportunity as agencies look to use IT as an enabler to lower costs and increase efficiencies.
According to Ohio Governor John Kaisch, “economic competitiveness” will be the focus for Ohio’s upcoming fiscal years, in which the state will be placing heavy emphasis on job creation. Governor Kaisch outlined several goals expected to drive this transformation within the state which includes:
- Improving Education for All Children: Creating a “world-class” education system that increases achievement and provides high-quality opportunities for all students.
- Helping More Students Get Degrees: Increasing the current percentage (25%) of Ohioans with a bachelor’s degree, so they are able to get on an expedited course to long-term success and stability.
- Cutting and Reforming Taxes: Cutting small business taxes in half for the first $750,000 in net income, income taxes by 20 percent and state sales tax rate from 5.5 percent to 5.0 percent to help low-income Ohioans who pay no income taxes.
- Making Medicaid Work Better: Helping more low-income and working Ohioans have access to health care through Medicaid. This is expected to improve the health of vulnerable Ohioans, and helps free up local funds for enhanced mental health and addiction services.
- Meeting Ohio’s Crucial Transportation Needs: Investing O$3 billion into the Ohio Turnpike in order to strengthen the transportation network. Additional highway dollars raised by the sale of the new Turnpike bonds will help accelerate other highway projects in Northern Ohio.
- Creating a Smarter, More Efficient State Government: Making sure state agencies are providing sustainable value to Ohioans, a high level of care for the state’s most vulnerable citizens and a jobs-friendly environment for future prosperity.
Health care seems to be taking the lead as far as budget share goes for both FY 2014 and 2015 (See Figure 1). The appropriation for the upcoming fiscal years has increased tremendously, due to a national shift in focus on health-related technologies. If approved, the Ohio Department of Health could receive nearly $650 million in both FY 2014 and 2015. This does not include all the other major health-related agencies within the state such as the Department of Mental Health, the Department of Aging, and the Department of Medicaid. When these entities are included, health care in Ohio could be receiving approximately $26 billion in FY 2014 and $28 billion in FY 2015. As mentioned earlier, one of Ohio’s goals for the upcoming years is improving Medicaid. Funding will be used to tackle issues such as fraud, waste and abuse in order to enhance Medicaid’s efficiency. Payment processes are also expected to be improved, where Ohio will reward hospitals based on quality as oppose to volume. Medicaid is the largest program in the state budget and has a recommended General Revenue Fund (GRF) of $15.1 billion for FY 2014; $16.8 billion FY 2015.
Part of the plan in Ohio for Medicaid and Health care will be to streamline health and human services (HHS) program. This includes modernizing eligibility determination systems and improving state agency operations. The Ohio Department of Administrative Services is in the process of securing services for ongoing Organization Change Management Services to support the rollout and production operations of the Integrated Eligibility and HHS Business Intelligence (BI) System. The development and implementation of the integrated Eligibility and HHS BI System is a multi-phase, multi-year project. Accenture was awarded the contract to build the new system back in February 2013. The contract is worth over $300 million, and will expire in October 2018.
For more information on Ohio’s FY 2014-2015 budget, download an extended version of this article here.
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This year, North Carolina Governor Pat McCrory made it clear that the state’s reliance on quick fixes is over and that his goal is to begin focusing on long-term reparations to ensure the state’s ability to provide for its citizens.
The below graph provides a visual representation of North Carolina’s budget from FY 2010 through FY 2015.
Governor McCrory’s major focus areas include increasing the State Repair and Renovation Fund to launch a 25-year plan to replace and upgrade aging infrastructure. He is also looking to increase the Information Technology Systems Reserve in an effort to fund high-priority IT projects taking place throughout government agencies. These are quite ambitious projects given the state is only increasing the overall budget by 3.6 percent in the first year, and while the governor has indeed asked for a significant increase in the IT Systems Reserve, it comes at the cost of the Office of Information Technology. While the IT Initiative Reserve is set to increase by nearly $35 million between FY 2013 and FY 2014, the Office of Information Technology is losing more than $39 million. Therefore, technology dollars are more so reshuffling existing resources, and there will actually be less money available in the next few years for IT projects.
Overall, the structure of the state’s departments has remained unchanged over the past few years. The one significant exception is the dissolution of the states’ Departments of Correction and Crime Control and Public Safety, and the advent of the new Department of Public Safety. Funding for the new department remained consistent with the funding levels of its predecessors, and no major initiatives, IT or otherwise, are planned for the next two years.
Unfortunately, not all budget changes involved a simple reshuffling; some departments lost significant amounts of money. The biggest loser was the state’s Department of Commerce, which lost more than $3 billion, followed by the Department of Transportation’s $1.5 billion loss, though it is likely that at least some of that loss was transferred to the Repair and Renovation Fund.
The small increase in the state’s overall budget means that most departments will maintain the status quo for the next two years. Few costly initiatives are planned, and as the governor stated, the next few years will be used to set the stage for long-term growth.
While the overall budget remains fairly steady over the next two years, the IT budget has dropped significantly, which will likely have an impact on spending for the next few years at least, especially for those interested in the community development, general government and natural resources verticals. As expected, health care continues to be a growth area as well as economic development and regulation, which will likely be heavily focused on regulation and compliance.
Vendors interested in finding out more about North Carolina should check out Deltek’s state profile application.