The Sequester Train Has a Schedule to Keep

Buried in a stack of electronic links on the OMB webpage is a report issued on 9/14/2012 (7 days after the administration’s due date) concerning the sequestration “crisis/issue/thing” looming for 2013. Over a mere 158 pages, OMB attempts to provide specifically vague information related to where the axe will be used and where the scalpel will be used.  One key note early in the report …

As of the date of this report, no appropriations bills have been enacted for FY 2013. Accordingly, consistent with the assumptions required by the STA, the estimates for the level of sequestrable budgetary resources and resulting reductions assume that budget accounts with discretionary appropriations are funded at the annualized level provided by a CR at a rate of operations as provided in the applicable appropriation act for FY 2012, plus any funding enacted as advance appropriations for FY 2013. The annualized level, which is a preliminary estimate, is calculated by taking FY 2012 enacted appropriations net of any recurring rescissions and changes in mandatory programs (CHIMPs). The level is also adjusted for any transfers mandated by law.

Continuing in the report, the HUGE impact that many in the contracting arena feel is coming seems elusive.  First, remember this is a 9 year plan – the big $1.2 trillion in cuts comes down to $110B per year.  Next, consider that contracts do not account for all government spending that is possible.  Once you factor out all direct payments (even though some are still susceptible to sequester) and insurance (although some of this is still considered for sequester too), the contract spending for 2012 was about 42%.  Going forward, let’s assume all the cuts would be made to contracts though, just for giggles.  Last, consider that total federal spending on EVERYTHING is at $2.5 trillion for FY2012.

I admit my spending total above represents ALL spending and the sequestration would only cut into the “sequestrable” (mainly discretionary) base.   But, we are talking about contractors here, so let’s continue along that line.

THIS IS WHERE I ASK YOU TO HOLD ON TIGHT FOR A MENAGERIE OF NUMBERS AS THE ACCOUNTANT IN ME WORKS THEM OVER…

Based on 2012 spending to date on USASpending.gov, total contracts are $365B.  The cuts, according to the report, have to be somewhere around 10% overall or $36.5B for contracts (assuming all sequestrable spending is contracts).  There are over 100,000 prime contractors listed (over $0 dollar value award).  So, each of those contractors would take a relatively small hit of about $365,000.

Then again, let’s say the 80/20 rule applies and that 80% of the dollars go to the top 20% of the awardees.  So 20,000 prime contractors sharing that $36.5B burden would come down to $1.8m per prime awardee – no small figure for some at the bottom of that tier, but still relatively small in relation to dollars spent.

Or, let’s put the burden on the top 10 contractors.  [Sorry]!  $3.6B in reduction is a LARGE chunk to take out of someone’s revenue stream, even if the top 10 contractors accounted for $92B in contract spending.  So, by taking 1/3 of the revenue from the Top 10, you could save the rest from any cuts at all?

When it comes down to it, there isn’t a politician alive that wants to take money out of constituents’ pockets, but the cuts will have to be done.  As I look at the landscape (ever changing as it may be) it may not be so good to be a big guy in a big pond right now.  If the government can make cuts to contracts to the fewest contractors possible, there is a good chance that those getting under $25million wouldn’t see a cut or hiccup (cue the big lobbyists to take another approach).

I only throw out these numbers to set your mind at ease (maybe).  When it comes down to it, the responsibility lies with each contractor to avoid the impact as best as possible.  I am still a firm believer in efficiency and effectiveness and there are a lot of solutions out there to increase these tasks.   This reminds me of a joke (with names removed to protect the innocent).

Two xxxxxxxxx biologists were in the field one fine summer day.  While following a game trail, they came across a pair of tracks.  “Look! a pair of tracks” The first [biologist] said while pointing to the ground.  “Those are deer tracks,” the other [biologist] replied.  “Oh no,” she said to the first, “Those are definitely moose tracks.”  With this, they began to argue. In fact, they were still arguing when the train hit them.

Don’t be caught unaware when the Sequester Train rolls in to the station.

 

About Marty Herbert

With 13 years of government contract administration, analysis, finance, and audit experience, I have established a firm baseline in ethics and a specialization in government contracts that has prepared me to become a subject matter expert in my field. I am currently working on enhancing government contracts management and compliance through workflow tools and product offerings - attempting to make the process proactive as opposed to reactive.
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