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Sequester Would Bring Deep Cuts for IT Vendors Sequester Would Bring Deep Cuts for IT Vendors

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Budget

Sequester Would Bring Deep Cuts for IT Vendors

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If the sequester is implemented on Jan. 2, government information technology vendors can look forward to a world of pain, including terminated or restructured contracts, a redefinition by government agencies of critical programs, and an increase in disputes, including monetary claims by agencies against contractors, according to Elizabeth Ferrell, a Washington lawyer specializing in federal procurement.

"People fight when money's tight," Ferrell said in a briefing on Monday at the headquarters of the technology advocacy group TechAmerica.

The numbers are stark. The White House Office of Management and Budget is charged with implementing $54.7 billion in non-defense budget cuts for fiscal year 2013 in the event Congress does not find a way to stave off sequestration. "All agencies are planning," she said, "but they're planning behind closed doors and they're not telling people." Government contractors, Ferrell said, are "frustrated at the lack of detailed information on how sequestration will be implemented."

Her advice for tech companies doing business with the government is to determine the status of their funding. Projects that are fully funded won't be clawed back under sequestration, but just about everything else that isn't funded or protected as exempt, like Veterans Affairs' programs, will face drastic cuts as agencies squeeze 8.2 percent in annualized funding reductions into into three fiscal quarters.

According to Ferrell, vendors are already seeing a shift from contracts awarded under "best value" criteria--taking into account factors like past performance, maintenance costs, and energy efficiency--to the practice of awarding contracts purely on the basis of the lowest acceptable bid. This may augur a "fundamental shift in how government is making purchasing decisions," Ferrell said, and vendors will have to pivot to accommodate this new reality. "People need to rethink whether the services or goods they are providing is going to be competitive in a new environment," she said.

The impact of sequestration on vendors will be more drastic because agencies will first look to preserve headcount with the funding they do have, and delay current contracts that aren't "mission critical," according to David Taylor, once a budget adviser to former Senate Majority Leader Bob Dole, R-Kan., and a senior OMB staffer under President George H.W. Bush.

Even if Congress manages to avoid sequestration with a continuing resolution, Taylor noted, this will only "keep the lights on." Procurement spending will be delayed because "agencies are going to want to give themselves options when real decisions are made," he said. "The sequester is one of those pieces, but the real decision" is the final appropriation for fiscal 2013, he said. IT cuts are already baked into the budgetary cake in the near future--OMB instructed agencies in May to plan for a 10 percent reduction in IT spending for fiscal year 2014.

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