How sequestration affects your job

The sequestration will have a direct impact on the construction market, especially federal government contracts.

03/11/2013


According to a CBS News poll released on March 4, 53% of Americans feel that sequestration will personally affect them. Sequestration, the automatic spending cuts that took effect in the United States on March 1, has a broad reach. The blame game is being played out in Congress and at other levels of government: Democrats point the finger at Republicans, and Republicans blame the Democrats for the problems. In the end, most people (46%) expect the cuts will be bad for the country, as it will force cuts to important programs and services.

To add to the pain, construction spending was down in January 2013 compared with December 2012, according to the Census Bureau, which put it at an annualized rate of $883.3 billion. That's 2.1% below the revised December rate of $902.6 billion, and 7.1% higher than the January 2012 rate.

Both private and public construction spending dropped month over month. In January, the annualized rate of public construction spending was $269 billion, 1% below the December rate. Public spending is down 3% year over year, and at its lowest level since 2006. Considering that federal stimulus spending has largely run its course, and that the sequestration might drag on, it's unlikely that public construction is going to be anything but a drag on total construction spending.

To top it all off, furloughs have been scheduled for several government employees starting in April and ending in September. Travel, conference attendance, and nonessential programs have been put on hold. The list of employees to be furloughed is still in a state of flux, and a lot of rumors are flying about state, county, and municipal employees.

While I won't point fingers at anyone, I do want to look at how sequestration will affect the engineering and construction community. In conversations with engineers and construction attorneys , I learned the following:

· While the consequences will be slow in coming, we expect that ultimately there will be a slowdown in both governmental and nongovernmental contract volumes.

· Outside of the federal marketplace, I don't think the sequestration will have a direct impact. Federal work already in progress may get more challenging to complete on schedule-agencies that use civilian employees are going to be furloughing staff, so turnaround for reviews or clarifications will become lengthier. Army Chief of Staff General Raymond T. Odierno has already stated that civilian employees will be taking 22 days off without pay between now and the end of the fiscal year. Getting five days of work done in four will reduce agencies' ability to manage work. Upcoming work will likely be slashed from the projected work plan. Reducing the number/size of opportunities will cause firms that have been doing federally funded work to look elsewhere for opportunities. Future work also is affected by the unknown; investing in preparing bids for work that may or may not move forward is risky.

What can consulting engineering firms do to keep ahead of the fray? Everyone had the same answer: diversify. And prepare for intense competition.

· The wise firms will already have a diversified mix of clients, reducing the impact of sequestration. If a firm is heavily invested in federal work, it's going to be challenging to do much at this point-the federal market was already shrinking rapidly and now sequestration is a reality.

· In some respects, the across-the-board cuts will impact all market segments, but, as in all slow work periods, broadening your customer base to diversify can only help in carrying the firm through this slow period.

· One significant legal challenge for architects and engineers will be protecting their accounts receivable on current projects that, because of the sequestration, won't come to fruition. They may be due money for their design/engineering services with no available funding to pay them. Or they may currently be under a contract to perform design services on an upcoming project that will be cancelled/postponed as a result of the sequestration. They need to review their contract language to see what remedies, if any, may be available to them for having those contracts terminated.



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