While Congress lurches towards some sort of CR that will begin the 2025 Fiscal Year, contractors and their federal customers may want to look at the larger picture. While no one may like what they see, it is important to understand the reality and its possible implications for long-term spending and stability. The term “fiscal cliff” is one that is heard more and more and is something that cannot be ignored. The Congressional Budget Office (CBO) reported last week that they expect the federal deficit to reach $2 trillion this year. While revenue is growing, outlays are growing more quickly. Whether it’s mandatory spending, such as Social Security and Medicare, or infrastructure improvements, continued deficit spending patterns will soon require hard decisions by elected leaders who, to be honest, don’t exactly fit the mold of those chronicled in “Profiles in Courage”. This matters to contractors because it could point to significant changes in both spending and corporate taxation trends. Your taxes could go up, even as your market goes down. A quick quiz on the numbers is instructive.
Place the following categories of spending in order from highest to lowest: (A) Defense spending, (B) Interest on the federal debt, (C)Medicaid, (D) Medicare, (E) Social Security. While the answers are provided below, the fact is that all these choices, except Defense spending, are considered “mandatory”. Without meaningfully addressing these issues, taxes will inevitably increase and discretionary spending, which includes national defense projects, will decrease. We’ve said before that contractors should engage their elected officials in discussions on how spending decisions impact their business. That impact will increasingly have little, if anything, to do with actual federal contract spending.
Answers to Quiz: Social Security – $1.3T, Interest on the Debt – $870B, Medicare – $847B, DOD spending – $753B, Medicaid spending – $561B. All figures are from the Congressional Budget Office.
Even as contractors focus on the last two weeks of the fiscal year, changes are coming to the federal procurement world that every company needs to know about and understand. Here are three things shaping your market today that could impact your business for good or otherwise.
1. Guidance Coming Soon for AI in Acquisition: The Office of Management and Budget (OMB) is expected to issue policy guidance in the next 7-10 days on how federal buyers should incorporate AI into their acquisition processes. We wrote recently that many policy leaders believe that AI can be an important tool in assisting acquisition professionals in making good business decisions but is not nearly mature enough right now to be solely relied upon. The OMB guidance will tell government and by extension contractors, how AI can best be used in acquisitions right now.
2. More Rules Coming on Contractor Environmental Mandates: GSA officials said last week that industry can expect new rules on greenhouse gas emissions, climate change, and overall sustainable acquisition approaches in the next several months. This is on top of single use plastic restrictions and other pro-environment requirements that have previously been introduced. The current administration is serious about using the federal acquisition system to drive environmentally friendly practices. Whether the government market is big enough to actually make a dent in these areas is unknown, but industry should expect its costs to go up in trying to meet the new rules.
3. GSA Will Focus More on TAA Compliance: During the same regulatory discussion last week, GSA policy officials were clear with industry that Trade Agreements Act compliance will be one key focus area over the next year. Contractors are correct if they feel that there is a government-wide push to limit the use of Chinese technology and products across the board, with increased TAA compliance being just one tool to bring it about. Contractors are on notice that the government is serious about the origins of the components and end products being offered. They should also remember that the compliance pendulum seldom stops in the middle. As such, a “belt and suspenders” approach to compliance in this area may be a best practice. The bottom line is that government contractors cannot afford to only focus on sales, no matter how enticing that may be. The boundary lines of what is and what is not acceptable are changing and no company wants to wake up and find itself on the outside.
A small business working on a classified DOD project while logged onto an open, unsecured wifi network, a contractor who didn’t get paid because an adversary had stolen their CAGE code, and the relatively ease with which China was able to get complete F-35 blueprints are just some examples of why federal contractors and their customers must take cybersecurity seriously. If these examples shock you, imagine how shocked you’d be if you knew some of the examples that are so troubling that they, themselves, are classified. These were among the points driven home this week during a Coalition for Government Procurement “cyber-side chat”. While much of the discussion focused on new DOD CMMC requirements, the basic Read more
Contractors and their government customers are starting to talk about the possibility of a shutdown at the end of this month if Congress can’t pass a Continuing Resolution (CR). While current indications are that there will not be a shutdown, that could very well change as both the White House and Congress seek to add “must pass” measures to any CR deal. House Republicans, for example, want to add a provision making it clear that non-citizens are prohibited from voting in federal elections. Democrats point out that existing law is already Read more
Artificial Intelligence (AI) can be a useful tool to assist federal contracting officers in making sound and timely award decisions but is not yet at the point where people can just take an AI-generated answer to the bank. That’s the bottom-line observation from experts in and out of government who want to integrate AI into the acquisition process but don’t want CO’s to overly rely upon it. Most believe that AI can be a useful tool for acquisition officials, streamlining rote processes and perhaps even help in analyzing offers. At the same time, these experts state that Read more