With tightening budgets, increased oversight, and higher costs of doing business, government contractors need to rethink all aspects of their business. Aronson’s new white paper, “<RETHINK> Everything: The New Imperative for Federal Government Contractors,” offers insights for government contractors who want to thrive in this new era:
Download this insightful white paper to learn how the larger market trends are already affecting government contracting and what aspiring contractors can do to succeed.
When we last checked in on our government services indices back in October 2013 following Q3 earnings calls, our contractors were fresh off 16 days of sequestration, the budget debate had been postponed for another few months, and the overarching theme across all calls could be summed up in one word: uncertainty. Though this uncertainty surrounding long-term budget cuts has not completely subsided, the January 2014 bipartisan appropriations bill certainly had many executives breathing a (slight) sigh of relief during Q4 2013 earnings calls, released in late January and early February:
“Sequestration is eliminated for fiscal years 2014 and 2015 and replaced with reduced spending levels. The law also removed the across-the-board spending reduction methodology previously in place under sequestration and restored the ability for government agencies to move funds and discreetly allocate resources to higher priority areas, a critical revision that we have been seeking since the Budget Control Act was established back in 2011.”
– Lockheed Martin Corporation
“We are pleased that a fiscal year ’14 budget agreement has been signed… providing some near-term sequestration relief. This averts another disruptive government shutdown and provides our customers at least a near-term planning horizon.”
– The Boeing Company
“The end of sequestration does mean our customers can now allocate funds to the critical programs we support. We know that Cyber and C4ISR are going to see increases in 2014 and 2015.”
– KEYW Corporation
Companies not reporting as of date of publication: EGL, ICFI, LDOS, MANT, NCIT, VSEC, XLS
While cautiously optimistic about the federal budget going into 2014 and beyond, several contractors echoed one harsh
November showed signs of a strengthening M&A environment as announced deals in the government services sector totaled eight for the month, which is 60% higher than October and in line with November of last year. The market has continued to see deal volume pick up in the first part of December. Over the last 30 days, ACP has closed two transactions:
ACP Recent Deals:
As shown in the chart on the right, government services deal volume in Q4 is expected to account for more than a third of the government services deals in 2013. Part
Over the past week, the major Tier 1 Defense Contractors all reported Q3 earnings per share (“EPS”) ahead of analyst expectations and raised full year 2013 EPS guidance. The widespread positive performance was one of the few bright spots amongst the contractor community in a month that was dominated by fiscal gridlock and 16 days of partial government shutdown.
Despite $37B of sequestration cuts having gone into effect and potentially impacting performance, a
It seems hard to believe, but less than six months after the last budget showdown and shutdown, government contractors find themselves once again facing the prospect of a government shutdown. If the House, Senate and White House can’t come to an agreement over the budget and Obamacare, the stalemate may continue. With only a few days left for a Senate continuing resolution to be passed before the September 30th deadline, government contractors must be prepared for the hard times that may follow.
The total impact of a government shutdown is difficult to predict. Someone may “win” this game of brinkmanship but, regardless of their own political leanings, most government contractors, contractor employees, and the important government programs they support will suffer.
The experts of Aronson’s Government Contract Services Group released a whitepaper that describes steps contractors should take to prepare for and ultimately survive the shutdown. “The Government Shutdown – Contractor Perspective Likely Impacts and Possible Actions” is a great guide to help you build your action plan.
About the Author:
Thomas Marcinko is a Principal Consultant in Aronson’s Government Contract Services Group. He has over 25 years of government contracts experience, including proposal development, contract and subcontract administration, FAR compliance, small business programs, and government audits.