The prospect of sequestration and the dramatic $109 billion in cutbacks it would bring to federal contracting starting on Jan. 2 have been creating an atmosphere of great uncertainty in recent weeks.

The situation is unlikely to change until after Election Day, and even then, there probably will be additional political drama in the weeks afterward because of three related issues: lame duck congressional session, Bush tax cuts expiration and the nation’s debt ceiling limit being reached during that period.

So it is understandable that small federal contractors are feeling anxious. I am feeling uneasy, too. This is a historic and very contentious election and its outcome will be felt by all.

At the same time, as a longtime journalist in Washington, I would like to offer three observations that may add perspective on the issues.

Expect cutbacks in fiscal 2013.

Given the gridlocked Congress likely in fiscal 2013, contractors should anticipate significant spending cutbacks in non-defense spending. It is unclear exactly how deep the cuts will be—whether in the 8% to 9% range under sequestration or a 5% spending cut under GOP Presidential Candidate Mitt Romney’s 5-point plan or approximately a 2% to 3% cut in line with President Barack Obama’s budget request for fiscal 2013—it is clear that contractors ought to be prepared for reductions and should be maintaining the best possible communications with their agencies.

With the House GOP and Senate Democratic majorities likely to remain the same, and if Obama wins, there is talk of several deals possible. In the third debate, Obama even stated that sequestration would not happen. If Romney wins, he likely would follow through on a campaign pledge to immediately cut non-defense discretionary spending by 5%. Romney’s plan slices into social programs more deeply, while Obama envisions a reduction in defense spending as US troops in Iraq and Afghanistan come home.

Expect more brinksmanship.

There is a good chance of morepolitical drama in the lame duck session and through Inauguration. Under the Republican House majority’s leadership, there have been a number of cliffhangers in the last two years, including down-to-the-wire threats of a total federal government shutdown in December 2010 and again in April of 2011 as well as a prolonged stand-off over raising the nation’s debt limit in July 2011, which resulted in a downgrade of the nation’s credit rating. All of those were avoidable events.

The agreement reached by Congress and the White House to raise the debt ceiling in August 2011 included automatic cuts through sequestration beginning in January 2013. The sequesters will go forward if Congress does not take action to stop them.

Do not be surprised if there are brink-of-destruction tactics again on taxes, the sequester or the debt ceiling. The cliffhanger strategies used by House majority lawmakers in recent months have proven effective in gaining political leverage and it would be advisable to view them as the new normal.

President Obama—even if he is not reelected—will have some leverage in the lame duck session that he currently does not have. As the Washington Post recently pointed out, Obama may use that leverage to block GOP efforts to extend Bush tax cuts for people with incomes over $250,000. Sources reportedly told the Washington Post that Obama is prepared to veto a sequestration compromise if the package includes substantial tax cuts for the wealthy. Obviously, the leverage would be much stronger if Obama wins.

Partisanship is not a good strategy for federal contractors in the long haul.

Federal contractors hoping for a long career tend to avoid being associated with a political party and aim for political neutrality.

Of course there are benefits to having good working relationships with the winners of U.S. elections.

But over time, the contractors who stay on top tend to be better at working with both sides of the isle. Strive to make your business development plans viable under a Democratic or GOP administration nd to maintain a bipartisan attiude as much as possible as you watch the partisan infighting in Washington in the final weeks of the presidential and congressional campaigns.

Alice Lipowicz, editor

More Information:
Washington Post: http://goo.gl/XV9zY
Reuters: http://goo.gl/jDi0F