Lean Times Ahead for Industry As President Obama and Congress move to reduce federal spending, “contractors are probably the first to get cut,” says Ray Bjorklund, senior vice president of the research firm FedSources. Bjorklund calculates that the final appropriation for fiscal 2011 cuts $17 billion in contract spending, a tiny slice of the $720 billion federal procurement budget. But the reductions are deep enough in some areas that they “come close to breaking some programs,” he said in an interview. Uncertainty about future appropriations means that planned and existing programs will have to be restructured and possible downsized or stretched out. FedSources says contractors need to anticipate disruptions in their work. “Cash flow for both government and contractors will be tighter,” the company’s annual forecast says. “We know that the reality of reduced government spending and ‘right-sizing’ is coming,” the forecast says. “But we’re also learning it will happen sooner than later.” And it’s going to get worse. Bjorklund said some cuts in the 2011 appropriation were taken from the president’s 2012 budget proposal, meaning new cuts will have to be found for next year and succeeding years. By “borrowing ahead,” Bjorklund said, the procurement budget “is getting tighter and tighter and tighter every year.” He forecasts a multibillion dollar reduction in Defense Department spending on service contracts. Defense contractors can expect the department to be slower in committing to contracts and slightly slower in paying contractors. The Energy Department’s clean energy initiatives are on the block. President Obama’s initiatives for transparency in government—new databases and websites—are being singled out for cuts. The 2011 appropriation chops spending in nearly all categories of construction, both military and civilian, and puts the brakes on many highway projects. Among the few new opportunities in FedSources’ forecast: Spending on veterans’ health care will increase; the Department of Education plans to consolidate student loan programs and will need to hire contractors to administer the programs. House Republicans have said their goal is to roll back federal spending to 2008 levels, before the economic stimulus program was adopted. While that sounds drastic, Bjorklund says 2008 “was a pretty good year for contractors.”