Democrats insist Republicans accept tax increases in order to alter Defense cuts.
Texas Insider Report: WASHINGTON D.C. The federal government terminated 13579 contracts in the fiscal year ending Sept. 30 more than double the 5692 it ended in fiscal 2006 according to procurement data. National Security and domestic programs face $1.2 trillion in across-the-board reductions over a decade
if Congress and the White House dont reach a deficit-reduction agreement today referred to as the Fiscal Cliff and automatic cuts known as
sequestration take effect Jan. 2.
The value of canceled deals was $2.15 billion last year compared with $416 million five years earlier.
Last years terminations such as a $144 million deal with Wisconsins Oshkosh Corp. for battlefield ambulances reflect the discontinuation of war funding that fueled a boom in contract spending in the past decade.
A surge in canceled U.S. contracts as war funding winds down may be a preview of the damage ahead for government vendors under looming automatic budget cuts.
Its like any business; if youve got major uncertainty in the marketplace then youve got to tighten the reins and plan for the worst said Dan Jacobs chief executive of the Federal Market Group a Warrenton-based consulting company.
Cancellations occur for a variety of reasons. The largest termination this year was a $300 million
military contract for aircraft awarded to Sparks Nev.-based Sierra Nevada Corp. which planned to subcontract some of the work to Embraer SA of Brazil.
Democrats are insisting that Republicans accept some tax increases in exchange for altering the defense cuts. No proposal to avoid the reductions has gained support raising the possibility that agencies may drop out of deals so they have more flexibility to budget for priorities Jacobs said.
Spike in cancellations
The surge in cancellations since 2006 outpaced that of total U.S. contract spending which rose 23 to $531 billion last fiscal year from five years earlier. The terminations were probably due to a decline in war funding said Rob Guerra a partner at Guerra Kiviat a federal sales consulting firm based in Potomac Md.
Cancellations for work performed in Iraq rose to $214 million last year from $805000 in 2006 according to procurement data. They jumped to $493 million for Afghanistan work last year from $5.2 million five years earlier.
Most federal awards include a termination for convenience clause that gives the government broad latitude to back out of agreements. Cancellations because a contractor hasnt complied with its obligations
are less common accounting for $162 million in terminations last fiscal year or 7.5 percent of the $2.15 billion total.
For the government cancellations are expensive slow and labor-intensive said Dan Gordon a former administrator of the U.S. Office of Federal Procurement Policy and now associate dean for government procurement law at George Washington University Law School.
Uncertainty about future funding levels is more likely to lead to a slowdown in new contract awards than to a rash of cancellations he said in a phone interview.
I would expect there to be massive reluctance to enter into new contracts Gordan said.
