Elections Have Consequences
With the election this week there will be a complete change in the administration. When a president runs for a second term the odds are, first, that they will win and second, not a lot will change. When there is an election where the same party holds the CEO position, some things change, but most basic policies stay intact. When the position of President of the United States (POTUS) not only changes parties but is also becomes filled by the most unique candidate to ever run for the office, a successful businessman not steeped in the political morass that is Washington DC, then you can count on some VERY significant changes. This post will not take sides with either major political party. Its intent is to point out the facts of the election and the significant changes we see on the horizon that will affect the subcontractors under publically funded contracts.
DOD
The parties were sharply divided on the level of support necessary for a standing army. This links directly to the foreign policy of America and whether and when to deploy our troops and how to best prepare them for whatever mission the Commander in Chief decides. The President elect has proposed a very aggressive stance toward our ideological and military enemies. He has noted that the armed forces are ill prepared and has used the word “decimated”.
We believe at with a cooperative congress we will see a significant increase in military spending. It will include personnel, equipment, and infrastructure. We believe that this will be similar to what President Reagan did when he took office. The opportunities will be extensive and real. Companies that are not currently DOD contractors will need to recognize that the DFARS have some very different and unique provisions as compared to the civilian agencies. For subcontractors, you will see different flow-down clauses and some more restrictive provisions in sources of supply, cyber security, and reporting. If you are planning on pursuing this business, get your team equipped to handle these differences.
VA
The VA has been in the news extensively and for all the wrong reasons. From the hospital in Aurora Colorado, to the waiting lists in Phoenix, to the personal bonuses awarded to departing executives there will be significant changes in the VA. Additionally the recent Supreme Court decision in the Kingdomware case is still being implemented in the VA and this will provide significantly expanded opportunities for veteran-owned firms.
We project significant additional funding for VA and commensurate opportunities for both primes and subs. We are hopeful that Congress will finally fully fund the stand-alone mental health facilities so desperately needed by our veterans and we can finally arrest the horrible rate of 22 veteran suicides EVERY DAY. This is true travesty that needs direct and immediate attention. And that would be no small undertaking. The VA has different FAR implementation rules than does DOD, so again, if you pursue this business be prepared for different underlying rules and significant changes as the VA climbs out of the various messes that have gotten national attention. Keep in mind as well that many of the construction efforts in support of the VA have been taken over by the US Army Corps of Engineers. If you pursue work managed by them, and it is pure VA work, expect to see VA FAR Supp applications. If the funding is channeled through the Corps, keep in mind that their processes follow DOD more rigidly PLUS they are multi-layered regulations. You will see in a Corps contract Far clauses, DFARS clauses, Army clauses, Corps clauses, and very often clauses unique to specific districts within the Corps. Be prepared for some detailed study of these prime and subcontracts to ensure full compliance.
Infrastructure
President-elect Trump is a construction mogul. He knows construction and all that goes into it. He is also very hands on when he feels he knows a subject better than those under him. He has specifically stated that bridges, tunnels, roads, and other parts of our infrastructure are failing and need immediate attention. We suspect that we will see significant proposals to Congress in his first 100 days to remedy these perceived deficiencies. And keep in mind that this will cover a broad spectrum of contracting entities. Certainly the Corps of Engineers, DOD, and the VA will be included, along with the various state and local entities who will receive federal grants for their local improvements. Expect to see increases at the FAA for airports, and the Department of State for embassies and other foreign efforts. It is not yet possible to see what effect the President-elect’s view on the UN might have, but we suspect that there will be a bit of belt tightening there and with our NATO allies, even if only temporarily as this consummate negotiator works out different arrangements. Similarly look for changes in the many trade agreements that will provide new opportunities.
The Federal Acquisition Process
The 809 panel, at the direction of Congress, headed by our good friend and highly qualified acquisition professional Dee Lee, has already been formed and is actively looking for ways to improve the DOD process. Again, with a cooperative Congress, it is more likely than not that we will see significant changes to the DOD acquisition process. President-elect Trump has also spoken about the need to make government purchasing in general less complicated. He has not addressed this, but we suspect he will advocate for more straight purchases where the best contractor at the best price is hired without all the sociological baggage that can make the process more costly and less efficient. He will meet with very strong resistance from those interest groups, and perhaps a debate on the role of the social programs embedded into the acquisition process will be useful. They certainly have their purpose and strongly influence the selection of subcontractors by primes struggling to comply with their small business subcontracting plans. They also affect the candidate pool of contractors and President-elect Trump, coming out of the commercial contracting world, will, we believe, fight to remove restrictions and requirements that add cost without true value. He may have to adjust to the fact that the social programs embedded into acquisition are designed as major policy directives that have long-term benefits. Supporting small businesses have both tangible and intangible advantages and the costs are not always easily traced to a specific benefit. He gets the need for community support and involvement and we believe will get on board all the programs that support small businesses. We would like to think that there is an opportunity to finally update Davis-Bacon rules and remove a useless and burdensome group of costs that make federal construction excessively costly.
Government business in General
President-elect Trump is a consummate business man. In many respects he is also a classic New York business man. These folks tend to be very direct, very aggressive, and negotiate very hard. He discovered during the campaign that such tactics don’t always play well, but from his perspective they have a strong track record of success. He is unlikely to abandon these tendencies. Contractors will be treated fairly, and will be held to their contracts. We hope (but know what a perennial battle this has been) that we might see some progress in getting better definition of the various projects BEFORE the contract is awarded. The traditional and ubiquitous weakness of government requirements documents has greatly hindered performance, led to too many disputes, and has caused significant cost escalation. Discipline in the prime contracting process should improve the discipline in the subcontracting process, particularly with those firms that have certified subcontract specialists within their organization. In recent a conversation with a Program Director at a major DOD contractor, he lamented the fact that so many of his programs encountered problems with subcontractors. He opined that it seemed to him that the prime contract organization would get the “A” team while subcontracts ended up with the “B” team. Both groups should have “A-list” performers.
The President-elect got bad press during the campaign for not paying his subcontractors and for stiffing others when his companies entered bankruptcy. When you look into many of these cases, however, his non-payment was most often due to non-performance. And all business has risks, including the potential for bankruptcy (a constitutionally protected process by the way). Bankruptcy should not be disparaged. The solution here is to consider them as a legitimate risk in any business venture and manage that risk accordingly.
Man of action
President-elect Trump is a man of action. He will often be impatient with the bureaucracy and we suspect will rail against it often. Many feel that this is exactly the mandate the electorate gave him – to “drain the swamp.” There will be the typical bluster and puffing that goes with such negotiations, but there will be results, and in our opinion that is the real measure of a leader – the results they create. We believe that the repatriation of funds held overseas by American companies, significant changes in the tax code, and the (we suspect) massive reduction in regulatory control will change the playing field and spark significant increases in GDP.
President-elect Trump might be accused of being a crony capitalist because he is so adept and managing within restrictive systems to generate revenue. He understands the zoning rules in literally thousands of jurisdictions around the world. He will quickly understand the byzantine structure of federal regulations and will begin to roll them back. We believe that he is serious about removing many executive orders that affect procurement on day one. Expect changes along with the many opportunities. We encourage all of our clients to be prepared for this changing landscape. It’s a big job, but after all, somebody’s got to do it!