Associated General Contractors of America

Sequestration Goes into Effect: What Construction Contractors Should Know

Congress and President Obama failed to reach a deal to avert $85 billion in automatic budget cuts, called sequestration, and the president signed an order directing the start of spending cuts.

AGC estimates that $4 billion in federal construction funding could be cut during the next seven months of fiscal 2013 as a result of the sequester. The White House issued a statement on Friday saying they hope to continue working to find a replacement for the sequester. However, any potential deal reached will likely be months away.

Contractors who work directly with federal agencies will experience the greatest negative impact of the sequester. With many federal agencies likely to institute civilian employee furloughs at the end of March – which will include acquisition personnel – federal contractors should expect delays receiving permits and answers to procurement/ongoing construction questions and contract award information, among other things. Agencies, like the U.S. Army Corps of Engineers and Naval Facilities Engineering Command, could decide to procure work through more Multiple Award Task Order Contracts and Multiple Award Construction Contracts because of the lack of acquisition personnel to handle smaller construction contracts.

Although ongoing construction projects and awards already made may not be affected on a grand scale, some contracts could be terminated for convenience or de-scoped. Similarly, contractors may be asked to hold over their bids for 120 or more days. Ultimately, direct federal contractors should expect fewer new federal construction project solicitations in the coming months.

Contractors who work for state and local governments—which receive some federal funding—could also see negative impacts, albeit not as severe. Again, with federal agency personnel furloughs expected, these contractors could also expect delays in receiving federal permits and completion of federal environmental studies.

Contractors who build transportation infrastructure should not see a dramatic decrease in new project solicitations. The Highway Trust Fund (HTF) and Airport Improvement Program are exempt from the FY 2013 sequestration process, though there would be a slight reduction in last year’s $6.2 billion General Fund transfer to the HTF.

Municipal and utility contractors who have a stake in the clean water and drinking water state revolving loan funds (SRF), however, should expect a decrease in new projects. AGC estimates about $135 million will be cut from the SRFs under sequestration.

AGC has consistently argued for the sequester to be delayed through FY 2013 in order to provide our industry a smaller level of certainty until a grand bargain can be reached – one that truly reforms and prioritizes discretionary spending programs and preserves entitlement programs for multiple generations without unfairly raising taxes. Please TAKE ACTION and inform your members of Congress about sequestration’s impact on your business and the construction industry.

Be sure to also take a look at AGC’s report: “Sequestration and Its Possible Impacts on Construction.”

The Sequester: Absolutely everything you could possibly need to know, in one FAQ

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