Agencies, contractors chafe at cliff deal’s uncertainty on sequestration

The freshly passed legislation designed to avoid the fiscal cliff kicked the proverbial can of sequestration down the road by two months, worsening already existing uncertainty about agency spending levels, according to contractors and budget analysts.

By postponing but not replacing the across-the-board automatic cuts that the 2011 Budget Control Act slated to go into effect on Wednesday, lawmakers who crafted the primarily tax-oriented bill that cleared the House late Tuesday night ratcheted up the pressure on agency managers and private providers of services to government.

“What the press tended not to explain is that the size of the sequestration was reduced by 22 percent or two-ninths,” said Richard Kogan, a senior fellow at the Center for Budget and Policy Priorities. “So instead of squeezing a sequestration of size X into nine months, you would be squeezing a sequestration that is two-ninths smaller into seven months.”

Though the law -- which President Obama was expected to sign -- knocked $24 billion off the $109 billion scheduled for automatic cuts in fiscal 2013, “We get more or less the same dynamics,” said Patrick Lester, director of federal fiscal policy for the nonprofit OMBWatch. He said the same guidance for agencies that the Office of Management and Budget issued in late December would apply in late February.

“Furloughs could definitely happen but are unlikely,” he said. “I still think the administration would do what they can to prevent furloughs” using tools for shuffling funds to buy time. “The real question is what happens at the end of March when the debt ceiling and the continuing resolution expire. There are all different moving parts, but there’s no reason to panic.”

Defense Secretary Leon Panetta, meanwhile, thanked Congress for the temporary reprieve from the sequestration, which he said would have required him to send out furlough notices to 800,000 civilian employees. “Hopefully, this will allow additional time to develop a balanced deficit reduction plan that would permanently prevent these arbitrary cuts,” he said in a statement.

Stan Soloway, president and CEO of the Professional Services Council, a contractors trade group, called the scaled-back budget deal “a collective failure of leadership that exceeded and extended the instability and uncertainty that affects agencies, the workforce and contractors -- the whole community supporting government.” Contractors do not view it as “an improvement over what’s been impacting government for a long time,” he said. “The cost to government in delaying funding is not calculated anywhere.”

Soloway cited companies with bids into the Pentagon and the U.S. Agency for International Development that have been told there will be no award until June, nearly two years after their proposals were submitted. “The impact on business if the uncertainty goes on also flows to the market that supports the industry,” said Soloway, who served at the Pentagon during the Clinton administration. This delay, or “soft sequestration,” he said, “was predictable six or eight months ago.” Back then, an Obama administration Cabinet officer warned that this would be “the worst possible outcome because of the havoc it wreaks on annual planning,” he said. “No one is talking about the impact on agencies.”

Trey Hodgkins, senior vice president for national security and federal procurement policy at TechAmerica, agreed that the “degree of uncertainty is not alleviated at all, and for contractor challenges it makes things worse because there is even less certainty about where the cuts will come.” Under the continuing resolution, he added, “agencies can’t obligate funds for new programs, so the only way to protect funds is if they’re already obligated -- it’s a catch-22,” he said.

Such a short-term view can result in higher-priced contracts, as well as an inability to perform long-term contract planning, said Michael Fischetti, executive director of the National Contract Management Association. “Contract managers have become accustomed to this environment in recent years resulting from the short-term effects of one or more continuing resolutions when transitioning from one fiscal year to the next,” he said. But “government and industry contracting managers are well-educated, professional, highly ethical people, who will do their best for the American taxpayers regardless of this current and rising uncertainty.”

Marion C. Blakey, president and CEO of the Aerospace Industries Association, in a statement Wednesday expressed relief that the “heavy axe of sequestration” was avoided this time around. “We expect Congress will use the next two months to find thoughtful alternatives to ill-conceived, indiscriminate budget slashing,” she said. “Delaying implementation of sequestration by two months does not eliminate the uncertainty facing our business leaders and our warfighters. If sequestration is not solved in the next 57 days, it would be an abdication of responsibility by the leaders of this country.”

Members of the nonprofit community expressed concern about the impact of sequestration on the domestic spending side. “Federal policymakers have failed to recognize that the arbitrary sequestration cuts to domestic programs will reduce funding without reducing the underlying human needs, thereby increasing demands on states, local governments, and nonprofits in local communities while also decreasing resources to provide needed services,” read a statement from the National Council of Nonprofits.

“Too many policymakers apparently are unaware that federal funding actually flows to the states and localities to deliver basic human services. Often these services are delivered through contracts with nonprofits because governments have found charitable nonprofits to be more efficient and effective, in part because they are mission-driven rather than profit-driven,” the group said, “After five years of serving so many more for so much longer with so much less, America’s charitable nonprofits are past the breaking point.”