WASHINGTON — Stop work orders. Systemic project delays. State and local security spending curtailed by uncertainty at the federal level. A steep drop in GSA Schedule contract sales.
While the financial impact to the security industry cannot be entirely known, integrators, manufacturers and other stakeholders report widespread repercussions from the 16-day shutdown of the United States government in October. Yet even with the budget impasse averted, tensions continue to mount partly over the potential for lawmakers to become deadlocked again early next year.
The deal reached Oct. 16 will finance the government at fiscal 2013 levels only through Jan. 15 and lift the debt ceiling through Feb. 7. The legislation calls for Congress to hammer out a deal on fiscal 2014 funding. The main sticking point could likely be about how to resolve automatic spending constraints known as sequestration.
“It is a wait and see game, particularly for midsize and small integrators trying to do business with the government,” says Don Erickson, CEO of the Security Industry Association (SIA). “Depending on what type of deal they reach, there could be another mandated sequestration, another percentage that is mandated in terms of cuts that hits every program. We don’t know yet what that percentage could be, but that is definitely a strong possibility.”
Troy Connors, business development manager, Federal Solutions & Services at Siemens’ Building Technologies Division, says while he expects current budgets will continue to be met, operating under a continuing resolution especially affects security projects at the end of the fiscal year.
“The one implication is the fourth quarter boom that we always see. That could become even more condensed,” Connors says. “It was condensed from our company’s perspective this past year. Meaning, more jobs were pushed out to August and September and then some orders were even delayed into the 2014 fiscal year.”
The government makes funds available until Sept. 30 of each fiscal year. But if those funds are not used by the respective agencies, the money is lost. If the trend of operating under a continuing resolution lingers, the industry can likely expect an even further abbreviated buying cycle in the 2014 fiscal fourth quarter.
“It seems like there is a mad rush at the end of the year. Certainly on the security side, a lot of leftover money can be thrown at additional cameras, access control measures, etc. That happens a lot,” Connors explains. “Just as an example, our enterprise security business did approximately 50% of our business in the fourth quarter last year as far as the order intake was concerned.”
The shutdown itself delivered a heavy toll to numerous integrators and manufacturers working in the government sector, many of which were already experiencing sluggish GSA Schedule contract sales, says Lynn de Seve, president of GSA Schedules Inc. Some providers received stop work orders from end users while many others experienced delays in receiving payments due to furloughed government workers.
“We don’t know the legal side of this; it’s uncharted territory. Companies didn’t know if they were going to get paid or not,” says de Seve, who represents a number of security manufacturers, as well as large and small systems integrators as their GSA consultant. “What do you do if the government doesn’t accept your shipment? Who is going to bear that cost if they turn it away and send it back?”
Kevin Carpenter, a senior manager for Pelco’s government enterprise accounts, explains the shutdown further exacerbated the domino effect that short-term funding resolutions can have in the marketplace. Lost or delayed grant allocations at the federal level can oftentimes affect state and local agencies. For example, one of the biggest concerns is the Army National Guards and Air National Guards that are funded mostly by the federal government, but dispersed by individual states. End user-vendor relationships that once thrived in normal times are becoming strained or even broken, Carpenter explains.
“You have agencies out there that have long-term relationships and commitments that are going to require funding. If budgets aren’t actually put into play, then funds are not going to be allocated to those relationships,” he says. “Eventually those relationships are going to dissolve over time. It is going to have a long-term effect. It is not going to be something that a short-term resolution is going to fix.”