With the return of President Donald J. Trump to the White House just a few weeks ago and the initiatives that come with a change in administration, the winds of change are blowing at a speed not seen before. Consequently, I received a distressed phone call last week from a client who told me their contracts had been suspended effective immediately. It turns out that this is because virtually all their business has traditionally been through the US Agency for International Development; a recent casualty of the Trump-Musk chopping block, the Department of Governmental Efficiency (aka DOGE). "America First" means just that.
As a debtor nation, it was only a matter of time before someone realized that borrowing money from adversaries like China and then spending it on humanitarian aid to countries such as Botswana and Bangladesh were both altruistic and foolish at the same time. It's one thing if you have a budget surplus, and another if you do not.
The USAID shutdown, although likely not permanent, illustrates how vulnerable those who work for and contract with the Federal Government can be. It represents an unprecedented move where a government agency with a $45B annual budget and was funded by a CR through mid-March was effectively shuttered in a matter of days. And it is the USAID contractors who have had their funding suspended along with the stop-work orders as our long-tine client lamented. Is the Department of Education and its employees and contractors next to take the brunt of a push to "right size" the Federal Government?
As we iterated in a previous article, as if it is not bad enough to deal with the current climate of uncertainty and unpredictability, there are other challenges that both upstart and veteran contractors will likely experience. These have traditionally included in-sourcing, pricing pressure (e.g., LPTA), regulations (i.e., FAR) and bid protests.
While the current administration touts less regulation, it is highly unlikely that sweeping changes to the Federal Acquisition Regulations and Cost Accounting Standards will be put into effect by Executive Orders. The DCAA will continue to perform its mission of recovering costs and providing a positive return on investment. In FY2023, the DCAA in its annual report to the US Congress realized a "$5.1 to $1" ROI as a result of its audit activities. It is not likely that bid protests will cease to dot the landscape of government contracting, and it remains to be seen whether there will be a shift from lowest price to best value in coming years.
The silver lining in all of this is that in-sourcing jobs from the private sector to the government will either stop or slow to a trickle. With the goal of a smaller, less bureaucratic Federal Government as promulgated with the recent Federal employee buyout initiative, government contractors can breathe a sigh of relief that their contract workforce will not be hired out from under them by Uncle Sam. In fact, once it becomes evident that some yet unknown percentages of the Federal employees who accept the buyout are actually vital to carrying out the mission of the Federal Government, contract opportunities for staff augmentation should become more plentiful than ever.
Although the headwinds are unusually strong for many contractors who conduct business with the Federal Government as witnessed by the recent upheaval at the USAID, contractors who conduct business with the Office of the Director of National Intelligence (ODNI) and the Central Intelligence Agency (CIA), Department of Defense and other similar agencies, will likely escape the chopping block and become the beneficiaries of a smaller government with an increase in outsourcing (i.e., contract awards) and the resultant higher revenue. Though nothing is guaranteed, contractors who equip themselves with a compliant cost accounting system such as SYMPAQ will ultimately be rewarded, as always.
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