As I consider the new federal fiscal year (FY 2013) business environment (starting Oct. 2012), I am acutely aware of the key challenge in doing business in the federal space -- the severely reduced funding of our government. Just today I was directed to an article, "5 Challenges in Federal Contracting," by Charles S. Clark on the electronic Government Executive site. Although the article is directed at federal managers, it inspired this blog.
As a business dependent on a vibrant federal government and a strong economy, I pay attention to each article that discusses the ongoing and future difficulties to fund business, work, and personnel to do the work needed to keep the U.S. competitive. From a 28-year high in government spending of $552 billion in 2009, we find ourselves at $532.6 billion (down 3.5%) in 2011. The downward trend is expected to continue for the next two years or more. The Pentagon is expecting a half-trillion dollar reduction over the next 10 years. If the 2011 Budget Control Act (across the board) sequestration cuts that will kick in at the end of 2012 is not addressed by Congress, the impact on the Pentagon will double to $1,000,000,000! The fallout from this would not trickle down but ‘crash down’ to contractors and the public and erode our country’s competitive base.
The threat of sequestration has rallied many groups to pressure Congress to take action. Sequestration would lead to millions of jobs lost in the defense, NASA, and Homeland Security industries, plus untold fallout affecting corporations, small businesses, and ma and pa vendors. In anticipation of the sequestration, industry has no choice but to begin trimming overhead. Companies, such as ours, are expecting major reductions in federal spending and looking for ways to reduce our business costs from health care, benefits, salaries and raises.
A significant impact of an across-the-board-cut is on the many industries that need sustained funding to remain productive. “Industry cannot be turned on and off like a light switch” but needs a steady partnership to allow for innovation, expertise, and growth. It will be very expensive to re-create skill sets that are lost because of a shut-down of industry groups. Furthermore, the industrial base is “a strategic asset, a weapon” against our enemies. Businesses like ours make long-range investments in emerging areas to anticipate needs. The fear of random cost cutting blunts such investments.
Next, the current administration has moved toward insourcing work away from contractors, thus reducing the funding of contractors. This is a reversal from the prior administration’s policy of outsourcing. While insourcing makes sense to increase the federal workforce, it has not worked well in cost savings. While sourcing for talent and expertise is important to maintain a vibrant business, sourcing should not be about cost-savings first, but about obtaining skill-sets required for the mission. What our firm has done in support of providing a range of expertise and talents is to develop a Subject Matter Expert (SME) team of Certified Management Consultants.(C) This team of specialists from the commercial sector are available as needed on any of our contracts. This use of a ‘resource bench’ provides expertise when needed where needed and at no cost to our clients until they decide to use them.
An important challenge as a contractor in this down economy is to have the lowest possible cost structure. That means very low overhead. We use the ‘independent consultant’ model where the consultant’s office is his bedroom – no frills, no fancy furniture or office, just a computer and a cell phone! OK. Independent consultants (including principles from major firms) eschew the trappings of success and instead pass on their high quality service to customers without inflated costs. Our firm has no executive office. Our executives work from their home offices. Our administrative office is in a strip shopping space and the 1700 square foot space is shared by three firms. Overhead costs are shared to make it advantageous to each of the firms. As we work in the federal arena, our salaries are set low and competitive. We pass our cost savings to our clients in our low labor rates. With this approach and with over 800 SME’s available for work, we are positioned to offer our government clients best-in-class expertise at discount prices – a win-win-win scenario for us, the client, and our client’s client!
The times they are a changing…and we need to change with the times!
© Baldwin H. Tom CMC