Observers have seen the Sequestration issue as the most challenging development for proposal professionals in living memory. Even beyond the normal slowdown of a presidential election fall, the Sequestration drama has caused uncertainty and confusion that have further delayed the release of procurements. Business Development types are reporting that many of the Government customers are in a state of confusion and don’t know what to do. And thus the safest solution for them is to do nothing except to release already approved and critical programs. This in spite of a Continuing Resolution (CR) providing several billion extra dollars to support procurement in the fall quarter.

Scuttlebutt in the industry has been that, if a full-fledged sequestration begins, it would be a potential catastrophe for the proposal professionals. The fear of a net 9% drop in procurement spending would translate into an even higher decline in government proposal activity. As the reasoning goes, this is because the Government agencies had two ways to come up with their 9% reduction: They could either (1) let civil servants go; or (2) release less RFPs. And that many agencies would opt to keep their civil servants and do with less contracting out.

Opinion has turned somewhat more hopeful that Congress is willing to abandon its gridlocked position and work out a compromise instead. Rather than attempt to squeeze a compromise out of a lame-duck session, Congress will likely pursue one of several options to delay the sequestration budget cuts until well into 2013 or beyond, according to a recently released report.

The 124-page post-election analysis from Patton Boggs LLP concludes that Congress would rather delay sequestration than face further reductions to the U.S. debt rating, like what happened following the failed 2011 debt ceiling negotiations.

“Several Republican and Democratic lawmakers have floated short-term proposals in which a $20 billion to $75 billion deficit reduction ‘down payment’ is used to delay the process for three to six months, or even a year,” Patton Boggs reports. “Another possibility is that the $984 billion in spending cuts is postponed and subsequently implemented into a shorter window, i.e., over eight fiscal years instead of nine.”

Sequestration, to be implemented Jan. 2 unless a deal is reached earlier, will force $1.2 trillion in spending reductions over 10 years — $110 billion in the first year. The plan could cost Virginia, D.C. and Maryland more than 400,000 jobs, as federal agency’s ratchet down their spending to meet the new mandates.

The Bush tax cuts, meanwhile, are scheduled to expire Dec. 31. Combined, sequestration and the tax changes represent the so-called “fiscal cliff.”

The Patton Boggs report seems optimistic that, at the very least, the election will spur some urgency among all parties to come to the negotiating table. According to the report, it is “certain” that the “parties will undertake a serious discussion about tax policy” in the coming months.

“Given major philosophical differences on tax policy issues between the parties, it remains to be seen whether these discussions will lead to an agreement to avert the fiscal cliff while, at the same time, clearing the way for comprehensive tax reform,” the report states. “In our view, it is likely both will occur in the lame duck session (or shortly thereafter), beginning with agreement on a Bush tax cut extension coupled with a broad framework for a tax reform agreement, with the hard work of tax reform to span across 2013.”

Where this leaves the proposal professionals is in doubt until the lame duck session of congress acts. No one wants to see the dire consequences of the “fiscal cliff”. And leaders of both parties have shown their willingness to consider previously unacceptable positions: (1) The Dems being willing to consider changes in entitlements; and (2) the GOP being willing to consider tax proposals. This is the track to an answer – a balanced approach with contributions to the debt payment from taxes, from reform in the entitlement programs, and from procurement. Let’s hope that, whatever the Congress does, they do it with enough clarity and balance that the procurement process can regain momentum sooner rather than later.