Contractors worry about budget

Some contractors worry that tightening federal budgets could lead to less business, particularly as the pool of money for discretionary spending takes the brunt of the Bush administration's axe.

That topic, amplified by yesterday’s release of the proposed fiscal 2007 budget, dominated a Coalition for Government Procurement seminar held today in Northern Virginia.

Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee, said the budget situation "isn't that bad," but he cautioned it is bad enough that some members of Congress could move to roll back changes to the government's acquisition system that have been made over the past few years.

The government has "come a long way" in relaxing formalized procedures that prolonged procurement processes and often ended in agencies purchasing things they no longer needed. Davis said it would be unfortunate if apprehension about budget discipline caused those gains to be lost.

Despite the overall sense that the budget is tight, Davis said agencies such as the Homeland Security and Defense departments will continue to take priority.

"Those are still great targets of opportunity for the private sector," Davis said.

Stanley Collender, managing director of Financial Dynamics, made it clear where the budget stresses are. Of the $2.8 trillion budget, about $2.3 trillion is allocated to programs that Collender called untouchables, mandatory expenditures that can't be shifted. That leaves only $456 billion for discretionary spending, or $102 billion after accounting for about $354 billion in deficit spending.

However, the final budget won't be so severe, he said. "What we're looking at is a 78 percent cut in everything that's easy to look” at cutting, he said. "That's not going to happen."

That's a good thing, because the real budget picture is actually even worse, Collender added. The budget does not include expenditures for the conflict in Iraq, recovery from Hurricane Katrina, Social Security and a few other areas the administration prefers to handle "off-budget."

"That's not good budgeting; that's subterfuge," he said.

"The situation is not getting better," Collender said. "All of the forecasts about the deficit being cut in half are nonsense. It's not going to happen. All of you [contractors] should feel like you have a bull’s-eye on your forehead."

Rebecca Middleton, senior associate at the Rhoads Group, echoed Collender's caution but was more optimistic.

"It's going to be a very tough year, but there are principles that aren't going to change," Middleton said.

Contractors should remember the administration’s budget proposal is just a starting point for the lengthy congressional debate, she cautioned. Companies that see their existing contracts fully funded in the initial proposal can't assume they still will be at the end of the process.