"Congress always cuts," began Ray Bjorklund, Deltek's Chief Knowledge Officer, as he launched into his GFY2012 Government Trends update at NeoSystems on Thursday morning. But where and how Congress cuts isn't always obvious. For contractors who were curious about why they felt the pinch in fiscal 2011, Bjorklund had an answer on the first slide: "Many administration-planned GFY2012 cuts happened in GFY2011."

Ray Bjorklund, Deltek's Chief Knowledge Officer, gives his presentation on 2012 Government Trends

Despite a current market that continues to decline, Bjorklund insists that there are still opportunities for government contractors. However, those same contractors need to prepare for more cost-cut impacts, saying, "we believe that contractors are going to be taking a more severe cut than the agencies that they're serving."

As Bjorklund pointed out, the market had been driven upward over the past few years by several well-known and well-funded events. Two wars, a troop surge in Iraq, and Hurricanes Katrina and Rita helped create spikes in federal spending. (Recovery funding, he noted, had been expected to make a large impact as well, though that ended up largely going to state and local budgets.)

Examining the contractor-addressable portion of the President's budget request for fiscal 2012, he found it essentially flat, with a 1 percent decrease in compound annual growth rate (CAGR) compared to fiscal 2010. Out of eight key spending categories, only "Blue Collar O&M Services" had a significant increase (a 19 percent gain) in requested funding from fiscal 2011, contrasted with sizable decreases in funding for Consumable Products (a loss of 26 percent) and Investment Products (a loss of 19 percent).

Then came the political disruptions: In fiscal 2011, three more Continuing Resolutions (CRs), followed by fiscal 2012's debt ceiling crisis and six more CRs, a failed supercommittee on deficit reduction, and a final fiscal 2012 appropriation reached three months after the start of the fiscal year.

In the confusion, Congress made a damaging move: Seeing that fiscal 2012 requested numbers were lower than fiscal 2011, "Congress looked at the program for cost cutting and decided to do it earlier and accelerated it earlier to 2011." By enacting several 2012 cost savings measures in the 2011 budget, Congress created significant disruptions for contractors.

Bjorklund illustrated one example by showing the budget of the U.S. Department of Agriculture's Animal and Plant Health Inspection Service: While budget for grants, people and other expenses were down slightly, Congress-accelerated cuts removed $27 million from contractor spending.

Defense contractors aren't spared either. The DOD's efficiency initiatives for fiscal 2011 were cut by $1.2 billion, and with the agency's 2012 plans, contractors seem to be getting a mixed message that "we hate contractors from a government perspective but know that contractors are needed." Although he was quick to point out that again, Congress may derail many of DOD's plans.

Congress also took a heavy hand after it "pinned down government and its contractors" by removing $6 billion in requested funding because of "poor acquisition management -- money left off the table and money that could have been feeding businesses."

The news isn't all bad despite Bjorklund's warning that "it's going to get a little worse before it's going to get a little better." Efforts by the White House to freeze non-security discretionary spending have been viewed as unsuccessful, and while the government had moved to increase insourcing, "the government went too fast and too deep with taking contractors off and expecting government employees to pick up the work." That realization may swing agencies back slightly in favor of contract services spending.

So how do contractors stay competitive in 2012? Bjorklund says that companies should focus on "knowing the process, laws and rules that can make or break a program." Companies will also need to look at the open white spaces for opportunities, currently $300 million in existing potential.

And finally, "do a better job of contractor execution. I don't need to preach to you on that." Although the reason may have changed, "it helps government justify if your contracts are a good deal."

For additional coverage from Thursday's event, see a summary of DCAA director Patrick Fitzgerald's remarks, ""Breakfast Beat: DCAA Director Fitzgerald Talks Audit Reforms"

Micheal Mullen is a senior editor for GovWin from Deltek, the network that helps government contractors win new business every day. You can reach him at michealmullen@govwin.com, or follow him via Twitter @idiottech.