If you are a contractor to the US Government with a continuing resolution, having a risk management plan has never been more critical for your organization.
Guest blog post by Rich Wilkinson, Watkins Meegan (@GovConGuru)
At his confirmation hearing before the Senate Armed Services Committee in March 2012, Deputy Secretary for Acquisition and Technology, Frank Kendall, said, “We’ve already taken $50B a year out of the Defense budget. If we had to take another $50B out, a lot of that would fall onto industry.”
If, on January 2nd 2013, the President chooses to use the Budget Control Act to protect service member layoffs – which he has said that he will – the burden of the budget cuts will shift to research and development, and investment accounts. Kendall has stated that he believes sequestration might mean that agencies may not be able to pay vendors the amounts they agreed to under existing government contracts.
The Risk of Being Unaware
What does that mean for you? Contractors, particularly services contractors, may feel the bulk of the sequestration impact and should plan for partial and/or full Terminations for Convenience (T for C) of existing government contracts.
Contractors must act now. Most of the discussion to date has circled around Department of Defense spending but these budget decisions will affect all agencies of the Federal government. Without a robust, proactive risk management plan in place that takes these possible budget cuts into consideration, organizations risk overcommitting budget against their continuing resolution.
Four critical action steps must be taken:
- Gain a clear understanding of what may happen and to whom
- Determine which of your contracts are most at risk and by how much
- Create a contingency plan that addresses how a mandated reduction in contract scope could be implemented and what the effects may be
- Assign accountability to each contingency plan (i.e. ensure that an individual is responsible for it) and revisit it on a regular basis to keep it relevant
Education and Action
In my paper, The Hidden Dangers of Sequestration, I identify six hidden dangers that contractors must be aware of if they want to survive in today’s budget environment:
- The largest impact of sequestration cuts in procurement may be to service contracts
- The immediate impact of sequestration reductions may be to existing government contracts
- Large prime contractors may terminate subcontractors rather than layoff employees
- The administration effort required for the reductions may completely consume the acquisition work force
- The impact to new procurements may ultimately be greater than the impact to existing government contracts
- The longer the decision process takes, the larger the impact will be to the current year
Almost all FY2013 funding is at risk in some way. Most experts believe that prior year funds and money already spent by the contractor is most likely exempt from the cuts. But pending awards are at risk and incrementally funded contracts are likely most at risk. Contract departments must be prepared to respond to any unilateral contract modification under the changes clause, any notification of a T for C, and/or a Stop Work Order.
Contractors – are you prepared? If you already have a risk management plan in place, you are likely either ready, or ready to respond quickly. If you don’t have a risk management plan in place, get ready now with the risk management readiness guide.
Connect with me on Twitter @GovConGuru, comment below or via @ActiveRisk.