Sequestration Part IV – Preparing for the Worst
December 13, 2012
By: Eric Whytsell
As talks among the White House and Congressional leaders stumble along here in Washington, D.C., contractors all along the ideological spectrum hope that reason will prevail and a deal will be struck so the fiscal cliff and sequestration can be avoided. However, as demonstrated by the wrangling that resulted in the Budget Control Act of 2011 (and our current predicament), rational and timely solutions to the nations problems are not always achievable. Given this reality, prudent federal contractors need to take steps now to prepare for the worst.
The first step in such preparations is conducting a comprehensive review of existing contracts and subcontracts that sequestration will potentially impact. As explained in the first article in this series, federal agencies deciding whether and to what extent contracts should be cut will first have to determine the obligated value of their various contracts and such determinations will depend on the nature and circumstances surrounding the individual contracts. Contractors will need to put themselves into the shoes of their customers to assess which of their contracts are most likely to be impacted. Like their government counterparts, they should consider a number of factors: (i) contract type; (ii) whether the acquired services are severable or not; (iii) the remaining period of performance; and (iv) available options / funding ceilings. At this stage, it is vitally important for contactors to remember that their most profitable and strategically beneficial contracts may not be the most important or safest from the Governments perspective.
Once a contractor has a realistic, clear-eyed assessment of which of its contracts and subcontracts the Government seems least likely to cut, it needs to focus on improving its ability to perform those contracts. The idea is to give the procurement professionals making the hard decisions about how best to spend government money good reasons to choose to invest (or keep investing) funds in your contracts. Contractors can begin to do this by conducting a self-audit of contract performance, verifying contract requirements and comparing deliverables / performance against them. Even something as simple as making sure to comply with limitation of funds / costs clauses could have a big impact -- as well as providing an opportunity to keep in touch with the contract shop, always a good idea but even more important now. Contractors should also take action to ensure that their CCR / SAM listings are up-to-date and correct and their information in PPIRS and FAPIIS databases are accurate and as favorable as possible.
More substantial changes should also be considered, based on the state of the contractors current business systems. The eve of possible sequestration presents a perfect time for a company to review and make necessary improvements to its ethics and business conduct program, quality control apparatus, cost accounting system, and government property management procedures. After all, government personnel tasked with achieving agency missions with fewer resources are not likely to choose contractors who havent demonstrated an ability to perform at a high level. And such effort will benefit the contractor regardless of whether sequestration occurs.
Other actions relate more directly to managing the effects of sequestration if it does occur. First, contractors need to be ready to effectively respond to downsizing if it happens. In particular, companies should give thought to what must be done to protect key personnel and capabilities so that performance of ongoing contracts does not suffer. More fundamentally, contractors also must prepare for better change management and work to ensure their organization can quickly identify changes, track corresponding costs, and prepare change proposals in response to government decisions. Sequestration will almost certainly mean a great deal of change in every sense of the word. Contractors must be ready to respond effectively on all levels. People making decisions on the government side will appreciate timely, helpful responses that make their difficult jobs easier.
As in business of all sorts, being a good partner for your customer is always a winning strategy. In the context of sequestration, being a good partner boils down to three things: (i) taking the necessary steps to understand the issues and prepare your organization; (ii) engaging pro-actively with your customers (both end users and contract shops); and (iii) offering solutions to their problems that reflect the legal and practical realities you both are facing. All three are easier said than done, but all three are also critical to succeeding in the shadow of sequestration.
Eric Whytsell is the attorney responsible for the content of this article.