Brian Friel and Kevin Brancato, senior analysts with Bloomberg Government, break down the impact that sequestration and looming budget cuts will have on federal agencies and the contracting industry. This presentation was originally given at Achieve 2013, Privia's annual user's conference, on February 20, 2013. It has been reproduced with permission from Bloomberg Government. Get more on the federal market at http://www.bgov.com.

1. CONTRACTING AND MARCH BUDGET MADNESS
Now What?
Federal Market Outlook After
March Budget Madness
» BRIAN FRIEL
Federal Business Intelligence Analyst
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KEVIN BRANCATO
Senior Defense Analyst
PRIVIA ACHIEVE 2013
FEBRUARY 20, 2013

2. SEQUESTRATION OVERVIEW 1
Budget Control Act of 2011, as amended, mandates
sequestration on March 1, 2013, lowers spending caps for
fiscal 2014-2021 to achieve $1.2 trillion in overall savings.
CONTRACTING AND MARCH BUDGET MADNESS
Background
Continuing resolution funding government operations expires
March 27, 2013, same day as defense-only second
sequestration set to hit.
Bloomberg Government estimates $85 billion in annualized
March 1 cuts split between defense and nondefense
» Defense = $42.7 billion/7.3 percent, mostly discretionary
» Nondefense discretionary = $27.4 billion/5.3 percent
» Nondefense mandatory = $15.4 billion, percentage varies
» Additional $12 billion defense-only cut occurs March 27.
Impact Impact on specific programs is difficult to determine
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» Law says every “program, project and activity” must be cut
equally; neither law nor Congress clearly defines “PPA”
» OMB may allow some discretion in how cuts are applied
Contractors should prepare for cuts
» Cuts to future contracting opportunities; modifications or
cancellations of existing contracts

3. SEQUESTRATION ESTIMATES 2
Contractors to Take $30.8 Billion Sequester Cut: BGOV Insight
» http://www.bgov.com/news_item/Z-oN793yKThmWks5X_RaeA
CONTRACTING AND MARCH BUDGET MADNESS
Agency Agency Agency
Contract Sequester Sequester Discretionary
Department Sequester Percentage (Incl. Mandatory) Sequester
Defense $23,148 7.3% $40,863 $40,827
Energy $1,657 6.5% $1,791 $1,775
HHS $1,036 5.3% $15,838 $4,316 ADDITIONAL BGOV
SEQUESTERATION
DHS $853 5.4% $3,325 $3,059
RESEARCH
NASA $823 5.3% $949 $949
» Nine Federal Programs
DOT $508 5.3% $2,129 $1,748 Face Budget Chopping
State $481 5.3% $1,687 $1,685 Block
Justice $355 5.6% $1,708 $1,557 http://www.bgov.com/ne
Treasury $335 5.3% $1,243 $759 ws_item/lQfE9nnVck-
Agriculture $289 5.3% $2,018 $1,281 pHRNyfd_M-A
Int’l assistance $279 5.3% $1,298 $1,291
programs » Defense Contracts
Plunged 67% in
Commerce $250 5.3% $616 $603
January as U.S. Cuts
Interior $171 5.3% $923 $684
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Loomed
Labor $123 5.3% $1,510 $671 http://www.bgov.com/ne
HUD $133 5.3% $3,206 $3,206 ws_item/qjVGrZtCF1nb
EPA $89 5.3% $498 $496 pKqIWKjrTw
Education $73 5.3% $2,613 $2,417
SSA $46 5.3% $304 $304
NSF $24 5.3% $382 $377
Judicial branch $23 5.3% $362 $348

4. HOW DOD MIGHT MANAGE O&M SEQUESTER 3
DOD wants to treat O&M O&M Account
CONTRACTING AND MARCH BUDGET MADNESS
differently from acquisition
accounts
Training and Education
» Defining PPA as entire
account
» Would allow for more
discretion to trim spending by Land Forces
different percentages within
accounts
» OMB or Congress could
object to DOD’s
interpretation and selective
cutting Recruiting, Advertising and
Examining
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5. SEQUESTRATION OUTLOOK 4
Scenario 1: March short-term deal
» Negotiators use sequestration effects to drive deal to replace or put off this
year’s sequestration cuts
POST-ELECTION SEQUESTRATION OUTLOOK
» Sets funding levels for rest of this fiscal year. Leaves further battles for fiscal
2014 appropriations process.
Scenario 2: No short-term deal, sequester proceeds per current law, no sign of
long-term deal
Scenario 3: Long-term deal begins to take shape in March
» Negotiators buy two-month delay of sequester with $24 billion in replacement
or delayed cuts.
» Budget process used to work out details of trillion-dollar deal.
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Most likely outcome:
» Sequester begins
» Need to deal with continuing resolution forces action by March 27.
» Snowballing effects of sequester require short-term fixes
» Budget battles continue through at least fiscal 2014 appropriations cycle.

6. MARKET OUTLOOK 5
CONTRACTING AND MARCH BUDGET MADNESS
Federal contract spending (2011 constant dollars)
Sequestration could
$600
cut $30 billion from
Billions
contracts in fiscal
2013. $500
Market could settle
$400
over next few years at
$450 billion to $500
billion. $300
War drawdown
biggest factor. $200
Across-the-board dips
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$100
as agencies issue
fewer, smaller, shorter
contracts. $0
1988
1994
1984
1985
1986
1987
1989
1990
1991
1992
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003*
2004
2005
2006
2007
2008
2009
2010
2011
2012
Policy drives
procurement.

7. MARKET OUTLOOK 6
IT Services Spending at the VA
Dollars in millions by fiscal year
T4 Other Contracts
CONTRACTING AND MARCH BUDGET MADNESS
$1,800
Fewer contracts as agencies
rethink acquisition strategies $1,200
and consolidate work.
30% on T4
$600
$0
2011 2012
Average Length of SeaPort-e Task Orders (in years)
• Average length fell a
4.5 4.2 4.1 4.2 full year from fiscal
3.8 3.8 3.9 2010 to fiscal 2012
4
3.4
Shorter terms as 3.5 3.2
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• Fiscal 2012 average is
procurement chiefs push 3 lowest since fiscal 2004
2.5 2.2
more frequent competition.
2
1.5
1
0.5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012

8. MARKET OUTLOOK 7
“The tripwire policy reflects a significant
environmental change in acquisition policy
CONTRACTING AND MARCH BUDGET MADNESS
from ‘How quick can I get this done’ to ‘Do I
know how every penny is being spent.’” –
More scrutiny equals more
Navy notice to contractors - May 14 2012
delays.
guidance.
- Reduction of duplicative contracts
- Automatic review of labor rates over $250K a
year.
- Tracking of proposed versus actual rates.
- Crackdown on subcontracting pass through
fees.
- Increased re-solicitations when only one bid
received.
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GAO Bid Protests Filed, by Fiscal Year
More bid protests equal
more delays. 2,500 2,353
Up 5.2%
2,475
2,000
1,500
1,000
500
0
2011 2012

9. MARKET OUTLOOK 8
Uncertainty drives more work to IDIQs.
CONTRACTING AND MARCH BUDGET MADNESS
MAC Obligations By Fiscal Year
$100 $92
Billions
$88
$90 $84
$79
$80
$69
$70
$60 $54
$50 $46
$40 $35
$30 $25
$20 $15
$10
$0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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10. MARKET OUTLOOK 9
FY2012 Obligations
CONTRACTING AND MARCH BUDGET MADNESS
SeaPort Enhanced 5.0
LOGCAP IV 3.8
S3 2.4
USC-6 2.3
CRAF 2.3
SEWP IV 2.0
ITES-2S 1.8
EAGLE 1.6
Alliant 1.6
Encore II 1.4
$0 $1 $2 $3 $4 $5 $6
Billions
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Note: Non-schedule MACs. FY2012 data is preliminary. LOGCAP IV is the Army’s Logistics Civil Augmentation
Program IV; S3 is the Army’s Strategic Services Sourcing; USC-6 is U.S. Transportation Command’s Universal
Services Contract – 6; CRAF is U.S. Transportation Command’s Civil Reserve Air Fleet; SEWP IV is NASA’s Solutions
for Enterprise-Wide Procurement IV; ITES-2S is the Army’s Information Technology Enterprise Solutions – 2 Services;
EAGLE is Homeland Security’s Enterprise Acquisition Gateway for Leading-Edge Solutions. The Navy Runs SeaPort
Enhanced; the General Services Administration runs Alliant; the Defense Information Systems Agency runs Encore II.
Source: Bloomberg Government proprietary federal procurement database.

11. POLICY DRIVES PROCUREMENT: CYBER 4
CONTRACTING AND MARCH BUDGET MADNESS
Funding for DHS Cybersecurity accounts, by fiscal year (in millions)
President Obama’s 2012 2013
$350 328
executive order on
cybersecurity will drive $300
opportunities at $250 229 218
Homeland Security this $200
year. $150
$100
$50 32
$0
Federal Network Security Information security on federal
networks
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12. POLICY DRIVES PROCUREMENT: HEALTH 11
CONTRACTING AND MARCH BUDGET MADNESS
Centers for Medicare and
Medicaid Services and
Internal Revenue Service
lead $1.3 billion in
Affordable Care Act
contract awards. IRS is
ramping up its work now.
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13. 12
CONTRACTING AND MARCH BUDGET MADNESS
Q&A
Learn more about Bloomberg Government at BGOV.com
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