Contractors can expect uncertain, difficult times ahead, expert says

Tuesday - 2/5/2013, 11:24am EST

Michael Tinsley, CEO, NeoSystems Corp.

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Federal employees may face furloughs and who-knows-what-else under the across-the-board budget cuts scheduled for March. Federal contractors are preparing for reduced revenues under sequestration too.

"The good news is that we haven't yet seen widespread cancellation of contracts," said Michael Tinsely, CEO of technology firm NeoSystems Corp. "Of course, that's what we fear, but at least it hasn't reached that level yet."

But what some vendors are seeing are delays in getting contract awards, Tinsley said. A vendor may have been notified that its won a contract, but the award has not actually started.

"There have been delays in starting different phases of the work, so that's causing the delay and the slow down in the work for the contractor," Tinsley told the The Federal Drive with Tom Temin and Emily Kopp Tuesday morning.

Michael Tinsley, CEO, NeoSystems Corp.

These delays cost revenue, a situation that exacerbates the worries of contractors who are already afraid they my end up losing contracts due to sequestration.

"The contractors, in order to perform the service that they've been contracted to perform, of course they have to have the resources on hand to do that work," Tinsley said. "But when the assignments are slowed down or the work is slowed down, then those resources just have to stay on the bench and that in turn creates indirect labor and overhead costs for the contractor. It increases their operating expenses."

Some companies have reacted by reducing their workforce, while others choose to stay the course.

"They need to be able to react anytime the customer asks them to. For that reason, they try to maintain the workforce as best they can. So they're basically trying to weather the storm and see what happens as we go down stream," Tinsley said.

Government remains mum about its plans

One of the real problems contractors now face is that their buyers have been less than forthcoming about their plans for the next three to six months.

Tinsley doesn't see this lack of communication as a case of the contractors being hesitant to ask the buyers for information; rather, it's the government that is being hesitant in sharing information with its contractors.

"They themselves don't really know how this is going to play out, because it's dependent on what Congress does or doesn't do," he said. "So, some of the contingency plans that they may have identified, they're hoping themselves that they don't have to put those plans into play. For that reason, I think they're tending to keep whatever contingency plans that they have close to the vest."

While some contractors may try to convince an agency that a particular project is crucial or that its funding tracks back to an earlier budget, Tinsley said that there's very little a contractor can do to influence their buyer.

"The agency is going to make that determination themselves," he said. "But what the contractor can do is just make sure they're performing at their absolute best. Because certainly if they're presenting the government with some sort of performance problem, then common sense would say they're going to be first on the list if cuts have to be made."

Tinsley added that it's impossible for a contractor to underestimate the value of maintaining a good relationship with its customer, especially in uncertain times.

"That's first built on delivering your services as well as you can, but it also goes beyond that in having a conversation and type of relationship with your customer so that you can sort of garner information from them and make sure that they are aware of the work that you're doing and the importance that it carries," he said.

As if looming sequestration and possible furloughs aren't enough of a concern, delays in the passbacks for the 2014 budget have hampered the ability of contractors to influence the next budget cycle.

"Everything seems to be out of cycle, first of all, because of the fact of the continuing resolutions and the fact that we don't have a budget passed," Tinsley said. "So it's difficult to have those conversations with the appropriate people and to drive your case and do what you can to help shape their thinking, because, in fact, their internal processes are off cycle. So, it's just a difficult situation to navigate, and it's difficult to know what you should or shouldn't be doing."

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