Sequestration. It’s Here, So Now What?

photo_Steve-Charles_65x85by Steve Charles, Co-founder and Executive Vice President

Like so many of our clients and partners, I’m scanning the news almost hourly to see what will happen with sequestration. As I’ve advised earlier, it’s important to filter out the politics ⎯ admittedly that are getting more heated and unreal-sounding ⎯ from the underlying reality.

That reality centers on two points worth repeating.

First, the math. For the civilian side of the government, cuts of $42.5 billion represent 6 percent or so of overall spending, but the effect is magnified by the fact that the fiscal year is nearly half over. The cuts aren’t horrible, but they are real. On the Defense side, it’s more like 9 percent, and this on top of budget limitations worth hundreds of billions over 10 years agreed to last year.

Remember, Sequestration is a “hold-back” of a specified percentage on all accounts of a similar type. For instance, the hold-back percentage on Discretionary accounts is higher than Mandatory accounts, and some accounts are exempt. But all “sequesterable” accounts of the same type have the same hold-back percentage applied, so an agency can’t completely cut a program, rather, all programs, theoretically, are subject to equal pain and suffering. The Sequester Order expected March 1 should include all these details.

This requires a careful, tactical approach by your sales teams to focus on the real opportunities, analyzing each by understanding which budget line item is potentially funding each individual opportunity. February 27 guidance to agencies from Comptroller’s office (M-13-05) emphasizes use of furloughs, hiring freezes, travel bans and so on to meet the hold-back percentages on sequesterable accounts without damaging mission performance. The memo does not mention freezing planned expenditures on technology purchases.

So opportunities to continually improve government performance and cybersecurity are still out there. Understandably, program managers are being very careful about allocating funds until there is more certainty that the fund-certifying official can sign off on the disbursement–all of which must happen before Contracts can work on the procurement.

Second, go back and review those areas most likely to keep going during the sequester. These are spelled out in guidance from the Congressional Research Service issued in January. It’s called Budget Sequestration and Selected Exemptions and Special Rules. Note that word: exemptions.

Among the areas the White House has the discretion to exempt:

  • Military payroll accounts for uniformed members, which of course pulls along all of the support products and services related to troops.
  • Veterans medical benefits, which also pull through supplies and services.

These two have already been “rescued” by the administration. Other possible exemptions that relate to the sales of products and services:

  • Unobligated balances carried over from prior years from nondefense programs.
  • A dozen direct benefits programs. Normally the administrative expenses related to these programs would be subject to sequester. But here’s a crucial point. CRS reports that OMB has decided that discretionary administrative expenses for exempt programs would not be sequestered. The reasoning is convoluted, but that exemption from the sequester could be your ticket to continued sales.

Bottom line? It’s no longer enough to ask whether the customer has money. Now we need to get into the details at the budget line item level and find out how sequestration applies to that account. This is a big job. There are many thousands of accounts.

And don’t forget, there’s a continuing resolution behind the sequester. It expires March 27. So far no plan has emerged from Congress on how to avoid a government shutdown. In their caution, your customers are thinking about how to avoid stumbling into an Antideficiency Act violation. Will the CR simply be extended, or will Congress us it kill some programs and plus-up others? Anything could happen as Congress and the President wrangle over finalizing the way the amounts cut by the sequester actually happen over the longer term.

Sequestration Looming; Take Cover, Keep Antennae Up

photo_Steve-Charles_65x85by Steve Charles, Co-founder and Executive Vice President

Like a distant tornado, the federal budget sequestration seems to have been looming on the horizon, but never quite comes into sharp focus.

Well, don’t wander too far from the storm shelter. In recent days, the likelihood of the sequester actually occurring has increased markedly. This remarkable development, the outgrowth of intractable political polarization, presumably means budgets will cut across the board.

OMB has been quite public in disseminating its preparation guidance to agencies. Its program-by-program impact analysis from last year simply drew a line of reduction of 7.6 percent to civilian spending and 10 percent for defense across the board. That now applies only to dollars unspent for fiscal 2013 ⎯ which is running under a continuing resolution at slightly below 2012 levels.

But, so many statutory exemptions to sequestration exist, and there is so much discretion given the White House, that the real effect of sequestration will be totally uneven across of the board. A new Congressional Research Service summary explains this phenomenon.

The law lets most entitlement programs off the hook. But the White House has a lot of leeway over administrative expenses related to these programs, so pay close attention to them. That’s where services and other contracting activities may exist.

In some ways, sequestration is preferable to Congress than actually doing the hard work of choosing which programs to kill, if it comes down to that. This way, everything continues, even if at temporarily reduced contract spending levels. But in this short term, sharpen your communications and sales calls focuses on the assumption your customers will be distracted by the simultaneous work of sequester planning and work — two months delayed — on the 2014 budget submission.

When the Yarn Ball Unravels, Stick to the Knitting

Photo of Steve Charlesby Steve Charles, Co-founder and Executive Vice President

New evidence that the orderly budget process is in need of some serious tending came in the form of news that the administration will be late with its 2014 budget request. Here it is just hours before Christmas, and agency budget and program managers still don’t have their passback guidance from the Office of Management and Budget – and the 2014 request is due on the Hill, by law, the first Monday in February.

As Federal News Radio reported, several departmental CIOs were scratching their heads upon learning the White House was holding off on the passbacks. Officials are waiting until they have a clearer picture of how the fiscal debate will finally resolve, or if there will be a sequester the first week of January. That would change the base budget and therefore what a reasonable next-year request would look like.

So it’s not as if the White House is neglecting its duties. It’s basically bowing to reality.

Here’s what’s supposed to happen:

  1. Agency wish lists to go OMB in May of 2012, for the 2014 fiscal year.
  2. OMB details people to study and massage, and edited budgets are passed back to agencies in November.
  3. The president’s final request version goes to Congress in February 2013.
  4. Congress has between then and September 30, 2013 to debate and finish its appropriations work, which the president must sign.
  5. Fiscal 2014 budget goes into effect October 1, 2013.

Technology sellers with good agency relationships can sometimes get an early peak at selected passback numbers as they eagerly await the official release of the 2014 budget. Perhaps of equal value are the analytical perspectives essays on the budgets, which detail the approaches and strategies that underlie the numbers.

But the actual process has been steadily drifting away from the model schedule thanks to politics. This year, with the sequester debate the and six-month continuing resolution, the budget process has gotten so far out of phase even the normal, executive branch administrative processes seem slightly futile. Trouble is, the later the appropriation, the more compressed the acquisition planning and sales development cycle before September 30.

Rather than wring their hands in despair, though, technology manufacturers should look at this oddball set of circumstances as a chance to connect with customers in a different way. I’ve said it before: sequester or not, agreement or not, the federal government will still, somehow, spend north of $70 billion on IT over the next 12 months.

Take seriously the fact that they have to do market research and articulate options before buying anything over $150,000.  Show them what is cooking in your development labs. Demonstrate new functionality and capabilities your engineers are adding. Remind them how to buy via standing contract vehicles you have presence on. Ask them for their blue-sky thinking about what projects they would like to see, and what they expect to survive into the 2013 appropriation and the 2014 request. Show them how your products and services can lower their costs. Make sure they know how to write requirements that include you.

Yes, the budget and appropriations process has become distorted. That just makes it all the more important to redouble sales and business development efforts. As is true in the commercial sphere, companies that do the most diligent spadework in downtimes tend to gain the most market share and profits when the upturn comes.

CR? Sure, But IT Sales Opportunities Are Still There

photo_Steve-Charles_65x85by Steve Charles, Co-founder and Executive Vice President

The ongoing federal budget drama is helping contractors hone their “what-if” planning skills. All we know for sure is that the government is operating under a continuing resolution (CR) at 2012 spending levels until March 31. But that doesn’t mean you can’t find solid opportunities now.

Technology contractors’ sales challenges are threefold: 1) Making the most of stretched 2012 opportunities; 2) determining what’s possible under 2013 plans; and 3) finding out what carries into 2014 coupled with brand new initiatives in the upcoming 2014 budget request.

Some initiatives and program plus-ups can go forward even under a CR if Congress mandates. Members can and do insert language in CRs enabling increases in favored, existing projects.

We’ve analyzed the latest IT investment line items, the latest Exhibit 53s, and what is available under the current CR. We found many IT initiatives with greater spending ceilings in 2013 than in 2012. These are existing projects and many of them are funded by multiple program line items. Meaning: Your sales strategy should include trying to capitalize on the strong possibility that more spending is actually available under them this year, even with the CR.

Agencies must map expenditures to the spending authority granted by Congress. Don’t overlook crosscutting management initiatives that can pull money from multiple program buckets, including across agencies, even under a CR.

And don’t forget, the government-wide consolidation efforts articulated in the 25-point IT reform plan are ongoing. This means agencies can spend under existing authorities to keep moving toward the plan’s goals such as data center consolidation and cloud computing. Those will require spending on networks, storage, virtualization, and software services.

So, what can you do to succeed in this environment?

  • Do your homework and read the Exhibit 53s for each of your customer agencies.
  • Get reacquainted with their programmatic goals, which always drive their spending patterns.
  • Watch for the “passbacks” from the Office of Management and Budget on 2014 requests. They tweak agency requests en route to the completed budget request due to Congress early February.

Don’t get paralyzed even though it seems Congress is. The government’s first quarter is a great time to meet with your government customers and think longer-term and more strategically. Remember, when the fiscal situation sorts out, it will be just a few short months for agencies to complete purchase requests and acquisition packages in time for contracting shops to execute before year-end.

How Will the Election Results Impact Technology Companies?

by Steve Charles, Co-founder and Executive Vice President

To understand the impact of last night’s election on federal technology contractors, you’ve got to glance at the big political picture. What might be most remarkable on that count is what did not happen. The situation after inauguration day will be very close to the one we have now ⎯ President Obama in office, a strongly left-leaning Senate and a strongly right-leaning House.

Yet, the very sameness might propel both sides together to break the stasis. Both sides say they want to avoid the sequestration scheduled for January. Both sides say they want a budget deal. If they’re successful, it would mean, in the long term, more stability in projecting agency spending plans. That stability would in turn give your federal customers more room to create cogent technology roadmaps. That gives marketers a more open chance to drive long-term sales.

Focusing on our job at hand, successfully marketing and selling technology to the federal government, here’s what I see as the three most likely currents for the near term:

1. Look for continuance of policies favoring cloud computing, continuous network monitoring and other cyber security measures, and systems to control improper payments, particularly in the medical and health areas.

2. With the Affordable Care Act having protection from repeal, a major apparatus will develop to carry out its mandates over the next 24 months, most of which start in 2014. That will pull along major technology purchases in both administrative and analytical domains. States will be creating health insurance exchanges that will need to replicate federal functionality, so there’s a good chance for selling similar solutions at dual levels within the public sector.

3. Management initiatives, chiefly the TechStat and PortfolioStat review sessions will get a shot in the arm. So stay aware of how those are going for your customers. You can’t sell to a canceled or on-ice project! And the tendency toward government employees doing close-to-inherently-governmental functions will continue, giving sales strength to product manufacturers relative to systems integrators.

Of course, we’ll learn more once the election hangover subsides, and we’ll post more insights as the details emerge. Make sure you’ve signed up to follow this blog to keep up with the latest impacts on the federal IT vendor community.

Countdown to the Fiscal Year-End Finish Line

by Steve Charles, Co-founder and Executive Vice President

Only a few weeks remain in fiscal 2012.  And in an era of budget austerity, federal agencies need to spend every remaining 2012 dollar by September 30 on mission critical solutions.

There are a few things you can do to maximize your sales before the end of the fiscal year.

  1.  Stay open late. Remember, the government operates in every time zone so don’t overlook offices in Hawaii or Guam, they’re open after 11:00 p.m. EDT. Those customers will appreciate that you’re willing to accommodate them with updated quotes and order acknowledgments.
  2. Ask channel partners which contract vehicles can deliver fast. Be certain that when you suggest specific contract vehicles to customers, your quotes are consistent with the items, prices and contract terms of that particular vehicle.
  3. If possible, pre-fill your paperwork to save customers time. Be sure your paperwork is perfect – contracting shops and acquisition vehicle managers have more purchase requisitions than time. They’ll process the friction-free work first.
  4. Be creative.  Help your customers obligate those still-available 2012 dollars with cost-cutting, project-finishing offers.

Also, keep in mind that Congress will likely pass a six month continuing resolution when it returns in time for October 1. If this happens, it means agencies will get a full six months of spending authority to continue existing projects rather than the typical six-week-at-a-time CRs of years past.

Fiscal Year-End Heralds a Whole New Era

by Steve Charles, Co-founder and Executive Vice President

The end of the fiscal year is rapidly approaching. Even though the federal operating outlook may be murky, in this most political of political seasons, technology manufacturers actually face a time of remarkable change and opportunity.

It looks like an unusually tough season for those who sell to the federal government. A higher-than-normal degree of uncertainty hangs over the 2013 federal budget that combines with the practical effects of a barrage of policy initiatives still unfolding. In the short term, there’s unobligated 2012 money around. Agencies are also preparing 2014 budgets and the Office of Management and Budget (OMB) is asking for IT budgets at levels of 10% less than the average of FY2010-12 (M-12-13).

The election is driving everything the administration and Congress do. Congress won’t reach any 2013 compromises on the budget until the so-called lame duck session between the election and the start of the subsequent session. You’ll find the best clues to what 2013 will eventually hold IT budget-wise, in the priorities including: mobility and wireless, agile and fast development, cloud computing, cybersecurity, and shared services.

Here are a few best practices that technology manufacturers can follow to close out this fiscal and start preparing for the next:

  • Help your customers obligate those still-available 2012 dollars with cost-cutting, project-finishing offers.
  • Revisit 2013 budget documents agency-by-agency. The best opportunities for sales lie with strategic initiatives midway through development and have a good chance of continuance. Focus on those which have survived TechStat reviews aimed at killing off exceptionally late or over-budget projects.
  • Re-read the cyber, shared, mobile, and digital government strategy documents. Prepare to map products pitches against them. Don’t do this as merely an end-of-fiscal rush strategy. Government IT buying is changing fundamentally and sales approaches developed now will remain relevant for years to come.
  • In this complicated season,  BD and sales people should schedule deep listening sessions with your most important customers and prospects. Simply hear them out on their plans and frustrations. Just this once, refrain from talking about your products and services. Plan to come away with fresh insight into challenges the government faces and use this information to plan your approaches to 2014.

TechAmerica CIO Survey 2012 Results

by Steve Charles, Co-founder and Executive Vice President

The 2012 Federal CIO survey expresses continued concern about cybersecurity combined with frustration about the budget situation and IT acquisition processes that are not keeping pace with the ways IT is being provisioned.

Buying IT as a service from smaller providers is seen as a way to introduce innovation and lower costs.  Agencies are preoccupied with how to get out from under the “long tail” of life cycle costs associated with maintaining systems for decades.

CIOs believe that FedRamp with its “certify once, use many” approach will cut system security costs and improve security as the government moves away from standalone systems to IT as a service.

The complete report, Fiscal Constraints & Future Challenges: Driving Innovation at the Federal CIO Level, is at http://www.federalciosurvey.com/ — this is an annual TechAmerica deliverable.

Cyber Bills Mean Technology Sales

by Steve Charles, Co-founder and Executive Vice President

No sooner had a group of Senators introduced the Cybersecurity Act of 2012 then a competing group introduced the SECURE IT Act of 2012. Both bills use nearly identical language to impose a new era of compulsory continuous monitoring (CM) of information systems by federal agencies. So no matter which version eventually makes it into law, continuous monitoring is coming as a major new requirement for federal agencies

Although the legislative negotiations might take months, now is the time to begin to formulate a sales strategy surrounding the CM mandate.

Hardware vendors should consider OEM or value-added relationships with software manufacturers. They should keep the following tips in mind:

  • Simplify the buy for federal customers by offering an integrated solution
  • Develop a sales approach that emphasizes versatility of your product
  • Don’t overlook the mobile possibilities of CM solutions

Tune Out the 2013 Static

by Steve Charles, Co-founder and Executive Vice President

You’ve seen the 2013 budget request. And you’ve heard the various political reactions: It’s dead on arrival, it stands no chance of passage. Ignore it.

There are several cross-cutting issues in the 2013 budget request that may yield opportunities. These issues include:

  • Cyber security
  • Integration of thematically-related services spread across multiple agencies
  • Mobilizing the federal workforce
  • Data analysis to drive business decisions and reduce improper payments.

Keep in mind, enactment of 2013 is unlikely before the lame duck session after the October 1 start of the fiscal. But IT manufacturers should still start preparing for it. The best way is to strengthen your strategies for fiscal 2012, because certain themes this year carry over the next 18 months.

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