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Analyzing state and local cloud procurement in the GovWinIQ database

At this point, it’s cliché to talk about cloud computing as an emerging technology, as that point of view now strikes most IT consumers as behind the times. We’re not just approaching an SaaS/IaaS world anymore; there’s enough evidence to suggest we are already there.
The move toward cloud adoption has largely been a top-down measure, with the federal government driving implementation through its “cloud first” strategy, and state and local governments largely following along. It is not a coincidence that the first two federal CIOs (Vivek Kundra and Steven VanRoekel) of the Obama administration view cloud computing not as a choice, but imperative for a 21st century IT enterprise. This attitude has permeated throughout federal agencies and sent the message that it’s okay to take a few risks in pursuit of a more efficient and flexible IT landscape. Even the CIA is getting in on the action, announcing plans to utilize Amazon-like cloud services to handle certain big data functions within the agency. When the most secretive organization in the U.S. isn’t afraid of a technology, it’s a sign that a tipping point has been reached in the debate on government cloud use.
I was curious to see what our own data revealed about state and local cloud implementation over the past half decade, so I jumped into GovWinIQ’s IntelliSearch database, ran some targeted searches for cloud solicitations, and converted them into data visuals. With the important caveat that correlation does not prove causation, the results provide some support for the top-down cloud theory. Up first is the number of solicitations released by year. Please note that the red line represents the total number of opportunities within a category, while the graphs themselves represent total dollar value.
 

Okay, so we are not exactly blowing your mind here. State and Local cloud solicitations have been on a steady rise over the past seven years, and seem to have fully entered the national purchasing bloodstream around 2010. GovWinIQ is tracking 125 state and local bids with significant cloud computing components that have been released or are scheduled for release in 2012. That’s up from 104 solicitations in 2011, and just 65 solicitations in 2010. This trend holds true for overall estimated value as well, with $254 million in 2010, $343 million in 2011 and $438 million in 2012.
 
 
What  is interesting here is the fact that the estimated value of all active cloud bids in the GovWinIQ database ($567 million) nearly matches the total combined value of awarded cloud bids procured in the past ($638 million). In other words, there is almost as much government investment in cloud this year as there has been for all the other years combined that we have tracked this technology. Keep in mind that awarded contract values are not obtained for opportunity alerts (as signified by the “expired” category), so this may skew the data some. Nevertheless, it’s clear that state and local cloud procurement has seen some pretty incredible growth in just the past two years.
 
 
Most cloud bids are classified under the general government vertical, so it is not surprising to see which vertical takes the top spot. More interesting is the fact that health care and social services come in second and third. This largely jives with health care IT spending rising for years, partially driven by the adoption of health information exchanges created via the Affordable Care Act.  
Analyst Take
It’s an exciting time for cloud vendors, with governments at all levels jumping into the fray and purchasing cloud services. While the recession has had a dramatic impact on state and local budgets as well as federal funding for state and local governments, it appears the worst may be behind us, and forecasted increases in state and local IT spending should only accelerate cloud adoption nationwide.
 
Notable cloud computing tracked opportunities in the GovWinIQ database:
New York
Maryland
North Carolina
Michigan
Illinois
Texas
Wisconsin
California

Contractor Survival Tactics: General Dynamics Making Acquisitions To Offset Tightening Budgets

Over the past few weeks, we have been highlighting how various vendors are dealing with today’s challenging federal market, and outlining some of the steps these contractor’s are taking to achieve success going forward.
In this edition, we would like to turn the spotlight on defense giant General Dynamics Corp., which has been among the most active participants in the M&A arena since early May, acquiring five companies to expand its list of capabilities and addressable markets.
FIA Perspective:
General Dynamics expanding capabilities in several growing markets via recent acquisition spree. Below we highlight the recent acquisitions GD has made, and detail how these purchases may help the company going forward.
  • In early May, GD acquired IPWireless Inc. for an undisclosed sum. Based in San Francisco, IPWireless provides 3G and 4G LTE wireless broadband network equipment and solutions for first-responder and military customers. The acquisition will allow GD to expand its commercial networking solutions to better serve the needs of its customers, including municipalities who are moving to broadband public safety networks such as the FirstNet nationwide interoperable broadband network.
  • In late June, General Dynamics bought Earl Industries ship repair and coatings division to enhance its ability to compete for Naval contracting opportunities. The ship repair and coatings division of Earl Industries is a prime contractor for nuclear aircraft carrier programs, and provides maintenance and repairs for other Naval ships. Financial terms for the transaction weren’t disclosed.
  • In mid-August, GD said it would acquire Fidelis Security Systems, a provider of network security tools that provide real-time network visibility, analysis and control. Based in Waltham, Mass., Fidelis' solutions help customers stop advanced threats and prevent data breaches by providing visibility into the complex layers of a network, exposing malicious content in real-time. This acquisition will allow GD to expand its capabilities in the growing cybersecurity market, with a particular focus on incident response and situational awareness. Earlier this year, GD opened its Cyber Intelligence and Solutions Center located in Annapolis Junction, which houses experts working on cyber threat detection and mitigation solutions.
  • In late August, General Dynamics acquired the defense operations of Gayston Corp., which supplies precision metal components used in several munitions programs. Gayston's defense unit makes rocket motor tubes for the U.S. Army's Hydra-70 air-to-ground rocket program. It also provides liners and cartridges for 40mm ammunition rounds and components for 60-120mm mortar rounds, among other things.
  • Earlier this month, GD also acquired virtualization security software start-up Open Kernel Labs Inc. for an undisclosed amount. OK Labs provides virtualization software for securing wireless communications in the corporate and government sector. In addition, Open Labs creates apps and content for mobile devices and in-vehicle 'infotainment' systems. This acquisition will expand GD’s capabilities as a provider of secure mobile devices for public safety, civilian, military and commercial customers.
In 2011, General Dynamics spent $1.6 billion on six acquisitions, compared with three purchases in 2010 for $233 million.
Our Take:
Overall, we believe that General Dynamics will continue to be aggressive in making moves to remain competitive, while expanding its capabilities in growing markets such as cybersecurity and wireless.  
Over the next few years, companies which will succeed in this challenging environment will need to be flexible and make strategic adjustments where needed. We believe General Dynamics is taking these necessary steps, and that the company’s M&A strategy will expand its addressable markets and list of customers moving forward, while enhancing its ability to pursue future opportunities in growing markets.
At the end of last quarter, GD had about $2.54 billion in cash and cash equivalents in its war chest to put towards future acquisitions.

 

$224 million awarded for health insurance exchange efforts

The Department of Health and Human Services (HHS) awarded a total of $223,695,549 to six states today (Arkansas, Colorado, Kentucky, Minnesota, Massachusetts, and the District of Columbia) to help establish their health insurance exchanges (HIXs). Today’s awarded states are receiving Level One Establishment grants, except D.C., which received a Level Two grant. The funds are expected to further help states move forward with steps in creating the insurance marketplaces. So far, 49 states have received grant funding to build exchange infrastructure, and the grant opportunities will not stop now! States will continue to be able to apply for grants through 2014; awarded funds can be used during the first year the systems are operational.
 
Here’s a breakdown of today’s awards:
  
Arkansas: The Arkansas Insurance Department received $18,595,072 to work in partnership with HHS and other federal and state stakeholders to fully implement plan management and consumer assistance components of the federal exchange.
Colorado: The Colorado Health Benefit Exchange received $43,486,747 to establish services and systems that will help launch the new insurance exchange.
Kentucky: The Kentucky Cabinet for Health and Family Services received $4,423,000 to support the operational plan that outlines the planning, functional and technical design of the state exchange.
Minnesota: The Minnesota Department of Commerce received $42,525,892 to support new contracts to assist in the development of brokers/navigators and consumer services programs for the exchange, and continued work related to financial management and consulting.
Massachusetts: The Commonwealth Massachusetts Health Insurance Connector Authority received $41,679,505 to assist the Health Connector in efforts to successfully transition to a state-based exchange consistent with the Affordable Care Act (ACA).
District of Columbia: The District of Columbia Department of Health Care Finance received $72,985,333 to provide assistance to hire staff and consultants to manage activities related to the creation and first year of operations for testing and enhancement of the exchange.
 
As always, be sure to follow Deltek’s Health Care and Social Services Team on Twitter @GovWin_HHS, or connect with us through LinkedIn.

 

The Potential Impact of Sequestration on the Department of Transportation

As required by the Sequestration Transparency Act of 2012, the White House released a report last week on the impact that sequestration could have on agency budgets. The data provided by the White House lists agency accounts at the budget account level. The report does not provide details on the specific accounts, but we can develop insight into the potential impact on agency IT by comparing the listed budget account with information provided in the FY 2013 agency budget requests.
In this blog, I will point out notable exemptions as specified in the White House report, as well as notable sequestration amounts for the Department of Transportation.
Notable Exemptions:
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 the Office of Management and Budget’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 the Department of Transportation are shown below:
 
Dept./Bureau
Budget Account
Total Budget Amount ($m)
Exempt Amount ($m)
Transportation
 
 
 
Office of the Secretary
Working Capital Fund
495
495
 
Working Capital Fund, Volpe National Transportation Systems Center 
260
260
Federal Aviation Administration
Operations
11,498
6,895
 
Grants-in-aid for Airports (Airport and Airway Trust Fund) 
3,516
3,515
 
Administrative Services Franchise Fund 
466
466
Federal Motor Carrier Safety Administration
Motor Carrier Safety Grants 
307
307
 
Motor Carrier Safety Operations and Programs 
271
271
Maritime Administration
Ready Reserve Force
340
340
National Highway Traffic Safety Administration 
Highway Traffic Safety Grants 
550
550
 
The highest dollar value exemptions for Department of Transportation are the Federal Aviation Administration’s Operations budget and Airports Grants-in-Aid program. The exemption of $7 billion in the FAA’s operations budget leaves approximately $4.5 billion vulnerable to sequestration. The exemption of $3.5 billion in the Airports Grants-in-Aid program means those grants will be protected.
The FAA’s Operations budget provides funding for the Air Traffic Organization (ATO), the entity responsible for managing the air traffic control system.  Cuts to this budget could therefore potentially have a major impact on the funding of components for the Next Generation Air Transportation System, including the following systems:
  • Aviation Surface Weather Observation Network (ASWON)
  • Aeronautical Information Management Program (AIM)
  • Terminal Automation Replacement System (STARS)
  • Terminal Primary Surveillance (TPS)
  • Instrument Flight Procedure Automation (IFPA)
  • Next Generation Air/Ground Communications (NEXCOM) Segment
  • Voice Switching and Control System (VSCS) Tech Refresh
  • Wide Area Augmentation System (WAAS)
  • Weather and Radar Processor (WARP)
  • Airport Surface Detection Equipment - Model X (ASDE-X)
  • Alaskan Satellite Telecommunication Infrastructure (ASTI)
  • ATC Beacon Interrogator Replacement (ATCBI-6)
  • En Route Automation Modernization (ERAM)
  • Oceanic Automation System: Advanced Technologies and Oceanic Procedures (ATOP)
  • Traffic Management Advisor (TMA) System
  • Terminal Automation Modernization and Replacement (TAMR)
  • Automatic Dependent Surveillance-Broadcast (ADS-B)
  • Traffic Flow Management (TFM)
  • NextGen CATMT Work Package Programs
  • Data Communications NextGen Support (DataComm)
  • NextGen NAS Voice System (NVS)
  • Terminal Automation Modernization and Replacement Phase III (TAMR3)
  • Next Generation Air/Ground Communications (NEXCOM) Segment 2
  • NextGen R&D Collaborative Air Traffic Management (CATM)
  • NextGen R&D Reduce Weather Impact (RWI)
  • NextGen R&D Demonstrations and Infrastructure
The FAA had been poised to gain $99 million for work related to the Next Generation Air Transportation System in the FY 2013 budget request, making it a program area where increased spending previously had been anticipated.
Notable Sequester Amounts:
Notable sequestration amounts per budget account (>$200m) for Transportation are shown below:
Dept./Bureau
Budget Account
Total Budget Amount ($m)
Sequestration
Amount ($m)
Transportation
 
 
 
Federal Aviation Administration
Trust Fund Share of FAA Activities (Airport and Airway Trust Fund) 
5,061
415
 
Operations 
-
377
 
Facilities and Equipment (Airport and Airway Trust Fund) 
2,819
229
Federal Highway Administration
Payment to the Transportation Trust Fund 
6,200
471
The most notable amount potentially relevant to IT programs is the $377 million sequestered from the FAA's Operations budget.  Given that a total of $4.5 billion of this budget was vulnerable to sequestration the fact that only $377 million is actually slated for sequestration is encouraging for those working on FAA Next Generation projects.

 

 

Sequestration Report: Notable Exemptions and Sequester Totals for Treasury, Justice, and State

On Friday (9/14), the White House released its report regarding the impact of potential sequestration at the budget account level for each agency as required by the Sequestration Transparency Act of 2012. Although, the report provides little detail about each budget account, when cross referenced with each agency’s detailed FY2013 budget request we can glean tidbits of the potential impact to some areas involving IT.
In this blog, I will point out notable exemptions as specified in the White House report, as well as notable sequestration amounts for the Department of Treasury, Department of Justice, and the Department of State.
Notable Exemptions:
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 Treasury, Justice, and State are shown below:  

The most notable and highest dollar value exemptions for Department of Justice include Salaries and Expenses for the US Marshals Service and the FBI. With exemptions of $1.6 billion and $1.4 billion respectively in these budget accounts, 58% of the US Marshals and 29% of FBI’s Salary and Expense funding will be protected. 
Department of State shows an exemption of its entire Administration of Foreign Affairs Working Capital Fund of $4.2 billion. The Working Capital Fund finances, on a reimbursable basis, certain administrative services, such as printing and reproduction, editorial material, motor pool operations, inter-agency cooperative administrative support services, acquisition services, information technology desktop support, and aviation services.
 
Notable Sequester Amounts:
 
Notable sequestration amounts per budget account (>$200m) for Treasury, Justice, and State are shown below:
 
 
The most notable and highest dollar value sequestration amounts for Treasury include the IRS’ Enforcement, and Operations and Support budget accounts. 
 
The Enforcement account sequester amount of $436 million equates to 8% of the total requested budget authority for this account for FY2013. This budget account provides for necessary expenses for tax enforcement activities of the IRS to determine and collect taxes, to provide legal and litigation support, to conduct criminal investigations, and to enforce criminal statutes related to violations of internal revenue laws and other financial crimes. The Enforcement program also protects federal revenue by identifying fraud and preventing the issuance of erroneous refund payments. Information technology contracts and tools are used by the IRS under this budget account, especially in the area of identifying improper payments. 
 
The IRS Operations and Support budget account supports taxpayer enforcement and services by providing funds for rent payments, facilities services, printing, postage, physical security, administration activities, telecommunications, and information technology development, enhancement, operations, maintenance, and security. The Operations and Support account sequester amount of $325 million equates to 8% of the total requested budget authority for this account for FY2013. Sequester in this account will likely cause some reductions in IRS IT spending.
 
The most notable and highest dollar value sequestration amount for Justice includes the Federal Prison System’s Non-Defense Salaries and Expenses budget account with a sequester amount of $537 million. The Federal Prison System employs approximately 37,000 people according to OPM. Only 1.2% of these employees are classified as IT. So, the reduction in the Salaries and Expense area is likely to have minimal impact on the Federal Prisons Systems’ IT employees.
 
The State Department Administration of Foreign Affairs Diplomatic and Consular Affairs Programs Non-Defense budget account will be hit the hardest by sequestration at $1.1 billion out of a total gross budget of $15.9 billion. The Diplomatic and Consular Affairs Programs budget account provides funding for human resources, including training, human resources management, and salaries. The account also includes funding for overseas programs, diplomatic policy and support, and security programs. The relative amount of IT included in this program is difficult to decipher.
 
Determining the specific impact to federal IT contracts from sequestration action is difficult at best, given the information in the current report.   How agencies will implement these budget cuts remains to be seen. OMB stated that they will need more time to provide details regarding sequestration impact for each account at the program, project, and activity (PPA) level. In the meantime, contractors are bracing for the worst.

 

 

Next generation 911 projects on the rise

Over the last few years, many rural state and local agencies have strived to ensure that citizens receive the best possible enhanced 911 (E911) coverage. Phase one of E911 only required networks to identify the phone number and cell tower within six minutes of the public safety answers points’ (PSAPs) request. By 2005, the Federal Communications Commission (FCC) required PSAPs to move to phase two E911 to ensure full location capability from a 911 call. As nearly all PSAPs are phase-two compliant, the next logical step for these agencies is next generation 911 (NG911) capabilities. While it is likely that NG911 implementation will move slowly at first, there will be a period of time when agencies are moving in force to upgrade PSAPs to be equipped to handle future NG911 service.
                                                                 
This past month, Deltek updated its E911/NG911 vertical profiles to include details on the number of yearly procurements issued by states. Procurement data was made available for 2009 through 2011; we opted to leave out 2012 until the calendar year has concluded.

Moving forward, Deltek will provide profiles updates on yearly procurement activity every January. The map below provides a graphic representation of where the most procurement activity occurred. We can see that Texas, Illinois, Oklahoma, Virginia, Georgia, Michigan and Missouri were the top seven states, each with seven or more solicitation released during the three-year period.  

When further breaking down the data, the most glaring piece of information is the number of opportunities by year. In 2009 and 2010, there were less than 30 total procurements each year. However, when moving into 2011, we see the number more than triple, with more than 95 solicitation issued. Is this merely a coincidence, or is there something deeper that can be yielded from these numbers? The latter seems more likely due to the movement by many state and local agencies to look at NG911 technologies. It is important to note that Deltek identified procurements for this analysis from not only NG911-capable hardware, but also NG911 consulting services. Many agencies are hesitant to move to NG911 without at least conducting needs assessments, studies and other consulting efforts to ensure the move toward NG911 is the right one. With that in mind, it seems even more reasonable to conclude that 2011 saw a significant jump in 911/NG911-related activities because of more agencies’ willingness to consider the technology despite complete federal standards.
 

    Analyst’s Take

Despite the fact that NG911 standards have not been fully established by the FCC and the federal government, more agencies are considering the technology and seeing its future value in ensuring citizen safety. Even with the interest to move to the technology, agencies want to ensure the path to an IP-based 911 system is developed properly. At the conclusion of the 2012 calendar year, Deltek will reevaluate the data and determine the number of procurements that took place in 2012. Based on the trend, it would seem likely that 2012 would have an even greater number of procurements for 911/NG911 technology.

The National Emergency Numbers Association (NENA) is set to complete its NG911 standards in the fourth quarter of 2012; however, this date may be pushed back again. Vendors who provide consulting services should continue to reach out to consolidated dispatch efforts and to county-level consortiums to determine if they have considered moves to NG911. On the vendor implementation side, agencies may still be cautious with regard to NG911, but NG911-capable technologies should be a goal in order to not be left in the dust of an outdated technology just a few years down the road. The path to nationwide NG911 implementation won’t be easy, but it will continue to move faster than ever before.

HHS Sequestration Impacts States

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 …

CalHEERS focusing efforts on outreach and education

The California Health Benefit Exchange recently released a report on the status of the California Healthcare Eligibility, Enrollment and Retention System (CalHEERS). The state has been considering various names for the future benefit exchange, including CaliHealth, CalAccess, Welquest/Wellquest, Covered, CA/Covered, Cal, PACcess, Ursa, Healthifornia, Eureka, and the most popular thus far, Avocado. The state is looking more toward a creative name to provide context and meaning, and be “memorable.” California plans to have the final name approved for the logo by early November.
 
As far as outreach and education is concerned, California expects $40 million in federal funding over a two-year period. The program is expected to engage organizations and entities in order to heighten awareness and comprehension of health coverage options to promote a culture of coverage, encourage residents to enroll, and eliminate barriers to enrollment. Outreach and education are a huge component to the health insurance exchange initiative. California is considering the following as “Preliminary Concepts and Guiding Principles:”
 
·         Targeting resources based on the greatest opportunity where the highest number of uninsured and subsidy eligible individuals can be reached
·         Ensuring that all regions and markets in the state including the hard to move, rural and limited English proficient populations are reached through the program
·         Complementing the Assisters Program and the broader market strategy, including plan marketing
As the 2014 deadline inches closer, states will be focusing their attention on ensuring that people are fully aware of these systems and their capabilities in providing health insurance coverage. As always, be sure to follow Deltek’s Health Care and Social Services Team on Twitter @GovWin_HHS or connect with us through LinkedIn.

 

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

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 Potential Impact of Sequestration on the Department of the Army and DoD Non-Military Agencies

In this blog, I will point out notable exemptions as specified in the White House report, as well as notable sequestration amounts for the Department of the Army and the Department of Defense (non-military agencies).
Notable Exemptions:
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 the Office of Management and Budget’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 (>$200m) to budget accounts for the Army are shown below:
Dept./Bureau
Budget Account
Total Budget Amount ($m)
Exempt Amount ($m)
Army
 
 
 
Military Construction
Military Construction, Army
8,486
4,414
Military Personnel
Military Personnel, Army 
50,436
50,436
 
National Guard Personnel, Army 
8,267
8,267
 
Reserve Personnel, Army 
4,521
4,521
 
Medicare-Eligible Retiree Health Fund Contribution, Army 
2,404
2,404
 
Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Army 
913
913
 
Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Army 
524
524
Operation and Maintenance
Operation and Maintenance, Army 
81,090
8,037
Procurement
Procurement of Ammunition, Army 
4,514
2,078
 
Missile Procurement, Army 
2,087
285
Research, Development, Test, and Evaluation 
Research, Development, Test, and Evaluation, Army
12,897
2,749
Revolving and Management Funds
Working Capital Fund, Army 
12,279
12,101
 
The 3 highest dollar value exemptions for Department of the Army are the Military Personnel (100% exempt) budget, the National Guard Personnel (100% exempt), and Working Capital Fund (98.5% exempt). The exemption of 98.5% of the Army’s Working Capital Fund from sequestration is significant for vendors working with Army Materiel Command in particular, as a considerable percentage of the AMC’s budget for supply management comes out of the Working Capital Fund. This includes the Logistics Modernization Program and IT spending related to the supply management activities of the Army.
The potentially hardest hit Army accounts relevant to IT spending are the Army’s RDT&E budget, of which 79% is susceptible to sequestration, and the procurement account, of which approximately 51% is vulnerable to sequestration. Cuts to the Army’s procurement budget could have a particularly dramatic effect given that Army procurement is already severely stressed.
Notable exemptions (>$200m) to budget accounts for the DoD non-military agencies are shown below:
Dept./Bureau
Budget Account
Total Budget Amount ($m)
Exempt Amount ($m)
DoD (Non-Mil Agencies)
 
 
 
Military Personnel
Concurrent Receipt Accrual Payments to the Military Retirement Fund 
6,950
6,950
Operation and Maintenance
Operation and Maintenance, Defense-wide 
43,890
2,624
 
Defense Health Program 
37,168
2,388
 
Allied Contributions and Cooperation Account 
905
905
 
Department of Defense Acquisition Workforce Development Fund 
751
570
Procurement
Procurement, Defense-wide 
8,009
506
Research, Development, Test and Evaluation
Research, Development, Test and Evaluation, Defense-wide 
23,344
1,994
Revolving and Management Funds
Working Capital Fund, Defense-Wide 
54,877
54,473
 
Working Capital Fund, Defense Commissary Agency 
7,475
6,092
 
National Defense Sealift Fund 
1,833
610
 
Pentagon Reservation Maintenance Revolving Fund 
551
551
The 3 highest dollar value exemptions for DoD non-military agencies are the Defense-wide working Capital Fund (99% exempt) budget, the Concurrent Receipt Accrual Payments (100% exempt), and the Working Capital Fund for the Defense Commissary Agency (98.5% exempt). The exemption of 99% of the DoD’s Working Capital Fund from sequestration is significant for IT vendors because a considerable percentage of the DoD’s IT spending at DISA and other agencies comes out of the Working Capital Fund. This includes most of the large network infrastructure work at DISA.
The potentially hardest hit DoD non-military agency accounts relevant to IT spending are the DoD’s RDT&E budget, of which 91.5% is susceptible to sequestration, and the procurement account, of which approximately 93% is vulnerable to sequestration. Cuts to the DoD’s procurement budget could slow already bottlenecked DoD procurement channels.
Notable Sequester Amounts:
Notable sequestration amounts per budget account (>$200m) for the Army are shown below:
Dept./Bureau
Budget Account
Total Budget Amount ($m)
Sequestration Amount ($m)
Army
 
 
 
Operation and Maintenance
Operation and Maintenance, Army 
81,090
6,867
 
Operation and Maintenance, Army National Guard 
7,496
686
 
Operation and Maintenance, Army Reserve 
3,356
309
Procurement
Other Procurement, Army 
13,386
1,251
 
Aircraft Procurement, Army 
9,116
843
 
Procurement of Weapons and Tracked Combat Vehicles, Army 
3,003
276
 
Procurement of Ammunition, Army 
4,514
229
Research, Development, Test and Evaluation
Research, Development, Test and Evaluation, Army 
12,897
954
Military Construction
Military Construction, Army 
8,486
383
 
The most notable amount potentially relevant to IT programs is the $1.25 billion sequestered from the Army’s other procurement budget. These cuts would have a direct and palpable impact on Army IT procurement if they are implemented.
Notable sequestration amounts per budget account (>$200m) for the DoD non-military agencies are shown below:
Dept./Bureau
Budget Account
Total Budget Amount ($m)
Sequestration Amount ($m)
DoD (Non-Mil Agencies)
 
 
 
Operation and Maintenance
Operation and Maintenance, Defense-wide 
43,890
3,879
 
Defense Health Program 
37,168
3,269
 
Afghanistan Security Forces Fund 
14,100
1,325
Research, Development, Test and Evaluation
Research, Development, Test and Evaluation, Defense-wide
23,344
2,007
Procurement
Procurement, Defense-wide 
8,009
705
 
Mine Resistant Ambush Protected Vehicle Fund 
3,338
314
 
Joint Improvised Explosive Device Defeat Fund 
3,148
296
Military Construction
Military Construction, Defense-wide
4,415
415

 

The most notable amounts potentially relevant to IT programs are the $705 million sequestered from the DoD's procurement budget and the $296 million sequestered from the JIEDDO program's budget. The cuts to DoD procurement would be felt across IT contract competitions if they are implemented. The cuts to JIEDDO would have a directly negative effect on that program's technology development and fielding efforts. 

 

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