The next fiscal year's budget and debt ceiling situations loom over the federal market and present great risks.
My kids binged on the Harry Potter movies over our spring break so that may be influencing my thinking, but I’m hearing fearful whispers of a villainous return of something many might not want to say out loud.
Several economic factors are hanging over the market, namely that Congress needs to pass a budget or continuing resolution to avoid a shutdown. There also is the pressing need to resolve the debt ceiling.
The debt ceiling in particular might be the most problematic. Solving that issue often is the lever needed to make changes. Budget hawks have returned and are looking to bring spending under control.
The market has been here before. In 2011, Congress passed the Budget Control Act and included what many considered at the time to be a poison pill. Something so horrible that it would force Congress and the White House to cooperate and compromise.
Did it work? No. Do I dare speak its name?
The government market’s equivalent to Lord Voldemort is sequestration. It’s easy to imagine a large snake hissing out that word.
Sequestration was horrible. Instead of debating policy and making strategic cuts, sequestration was like using a bulldozer when a scalpel was needed.
Sequestration brought along the henchman of lowest price, technically acceptable contracting -- LPTA.
LPTA is a horror that frankly is looming because even if sequestration isn’t part of a fiscal year 2024 budget agreement or debt ceiling extension, it is reasonable to expect some mechanism that will focus on reducing our debt by cutting spending.
[I frankly think taxes should be raised because there is no way the U.S. can cut our way to fiscal health, but that is a whole other debate.]
Every looming budget crisis is inopportune for contractors and their customers, but this one especially is poor timing.
It took years for the market to recover from LPTA, but it seems that agencies are focused more on best-value and less on price these days. There is a growing focus on outcomes and not requirements.
But I know agencies can turn quickly. LPTA is an easy button for overworked and understaffed acquisition teams inside government. Agencies can also press that button under a mandate to reduce spending. But it presents danger.
I remember clearly being at a Navy briefing on its plans for the Next Generation Enterprise Network in 2015. The Navy had no problem saying they were not looking for innovation under a $3.5 billion contract, which the branch competed under LPTA.
The Navy saw no benefit to paying a premium for innovation. It is hard to imagine that scenario today, but all kinds of things can happen when budget screws tighten.
We also need to remember that the government has a very short memory. As one executive told me, agencies really only look at things two years at a time or even less.
So if sequestration and LPTA return, it could catch many by surprise.
Like Voldemort, the villains are out there and waiting to strike. Maybe you won’t say its name, but be prepared.