INFLATION REDUCES GOVERNMENT’S BUYING POWER

The government is getting less bang for its procurement buck due to the high rate of inflation.  This means potentially fewer projects for contractors or smaller opportunities than those they had originally been tracking.  Companies already know that the price of goods has increased, requiring them to pass along increases to customers.  Similarly, a tight labor market means that there are fewer qualified people to fill service-related positions.  While GSA and DOD have taken steps to ensure that contractors can be paid for at least a portion of the increases, that money has to come from somewhere.  It ultimately comes from a reduction in the number of things your government customer had planned to acquire this year.  A recent Bloomberg Government article highlighted the challenges facing state and local governments as they move to start infrastructure projects funded by the recent $1trillion infrastructure bill.  It’s seems $1T doesn’t go as far as it used to.  “In all likelihood, the number of projects that we’re going to put out this calendar year will be reduced,” Mike Keiser, acting deputy secretary for highway administration at the Pennsylvania Department of Transportation, said in a recent Bloomberg article.  Other inflation-related impacts on acquisition include a delay of new Buy American Act rules and a push to build up the workforce.  Federal Reserve Board Chairman Jerome Powell told Congress this week that the bank’s efforts against inflation could result in higher interest rates that, in turn, could lead to a recession.  While Powell doesn’t believe that this is a certainty, he did acknowledge that a “soft landing” would be hard to achieve.  Contractors will need to adjust their economic and pipeline outlooks accordingly.  Just remember not to kill the messenger over the message.