The Options

The current Continuing Resolution (CR) only goes through March 1. The recent action of Congress on the debt ceiling did not address the appropriation of funds. It only addressed increasing the debt ceiling enough to get to May 18.

The options open to Congress regarding the appropriation of funds for the period after March 1, are many. They could pass another CR that would also go through May 18. They could pass an appropriation going all the way to the September 31, or they could pass a CR for any other length of time. One senior business development executive predicted that Congress will pass a CR going through May; pass another going into the summer, and then pass a final CR going to end of the fiscal year.

The key question is this: Will the political decision in February be to sequester the whole $110 B amount for 2013, sequester a lesser amount, or postpone the decision to a later time? Observers close to the political process think it is clear there is no political stomach for shutting down the government. However, if there is no clear cut resolution of the appropriation question in February, we can expect a continuing slowdown in the process of releasing solicitations.

The Indecision Problem

The primary factor slowing down the release of RFPs is the political indecision in the process of deciding what appropriations we will have in 2013. The politicians could sequester the whole amount, and our business would improve if they would do it in February, because then the decision would be made, and the situation would be clear. Thus the agencies would know what funds they have to work with, and they could move forward.

Observers close to the Republicans say that the GOP wants to sequester the whole amount, totaling $110 B throughout the entire fiscal year. This is seen as a test to see what level the pain will occur. And if the pain is too great, then they will make adjustments in the CR in maybe 2 weeks and pass a less stringent reduction in funding.

The GOP thinks the only way to start the process of cutting spending is by allowing sequestration to take effect. Chairman of the House Appropriations Committee Congressman Ryan says sequestration is going to take effect. But the president has previously said there is no way that we are going to have sequestration.

It appears to observers that the GOP Congressmen and their staff do not have a strategy. Nor has the president, the speaker of the house, the majority leader of the senate, or any other powerful leader shared a strategy.

The DoD Problem

An executive in a lobbying group representing the services industry pointed out that the Department of Defense (DOD) is very troubled by their particular situation. The implications of not addressing fiscal challenges facing the DOD under a full year CR are extreme. This is because the sequestration takes $45 B from the DOD budget, and the CR underfunds Defense by another $50 B totaling a $95 B cut. Some observers believe that on March 1, there will be a CR for the rest of the fiscal year, but there will be some adjustments made to soften the impact of the CR on major defense programs.

One problem with the sequestration is its blunt and unfocused approach of cutting every program in every agency equally down to the line item level. The National Security Agency, for example, would have equal cuts across over 700 line items. The issue with the equal cuts is that it prevents the agencies from focusing their resources on their high priority and strategic areas. This across the board cutting applies to the sequestration this year and next year. After that, the law lets the agencies have flexibility in applying the cuts in whatever areas make the most sense.

It is predicted that Congress will leave the across the board cutting intact. This is because equal cutting lets everyone feels the pain equally, and the president and agency heads can’t pick winners and losers. If the agencies had flexibility in applying the cuts, they might cancel a program in some Congressman’s district. If the cuts are equal, then nobody is treated disproportionately.

The Need for a Decision

Assuming that the politicians make a decision to sequester on March 1, and that they pass a CR for the balance of the fiscal year, this will be a much better outcome than continuing to “kick the can” down the road. This is because the uncertainty is worse than knowing what the reductions are. So far during 2013, agencies have been conserving and not releasing RFPs, doing evaluations, and making awards because they aren’t sure what budget they will have. They have been hoarding resources to be sure they have enough left for their critical projects.

Let’s hope the politicians have the collective sense and will to make a decision that will allow the process to move forward after March 1.