Forecast 2008: Chart your course

Elections, GSA contracts, deadlines and congressional oversight shape the future

Another year has dawned, and 2008 promises the usual doses of action and uncertainty, with the November elections adding an extra twist. Many of the issues forecasters expect to see playing out this year were set in motion in previous years and continue to unspool. However, with the presidential and congressional elections overshadowing other events, many of the factors that observers typically consider when making predictions are harder to read.

Pulling the levers

With the Bush administration's days numbered, agencies might be reluctant to tackle initiatives that the next administration might not favor.

Fortunately, Congress finally approved an omnibus budget deal that allows agencies to move beyond the continuing resolutions that kept their spending flat. However, Congress has a full plate in 2008 with the war in Iraq continuing and elections approaching. The next administration will likely replace any Bush appointees who haven't already stepped down, but in the meantime, they have less and less clout to affect policy initiatives as the year progresses.

The war in Iraq and the upcoming Quadrennial Defense Review will continue to complicate defense spending. And the long line of departing appointees and managers and subsequent vacancies in procurement shops could make it tough to get new projects off the ground.

At the Homeland Security Department, Secretary Michael Chertoff said he wants to push forward on top priorities, including the Real ID Act, the Western Hemisphere Travel Initiative and the Secure Border Initiative's SBInet. To aid DHS, Congress has granted significant increases in funding for port security, cybersecurity and interoperable emergency communications.

Meanwhile, not just the White House will change hands after November: Congressional elections will alter the balance of power on Capitol Hill, either expanding the Democrats' slim majority or reversing it.

Homeland security and defense contracting are two priorities for the current administration, but the signs are mixed on whether they will remain so for Congress. Democratic leaders have pushed a reformist agenda in federal contracting that could come into sharper focus this election year.

When the Democrats became the majority in both houses in 2007, their agenda included attacking suspected waste, fraud and abuse in federal contracting for Hurricane Katrina recovery operations and reconstruction efforts in Iraq. Rep. Henry Waxman (D-Calif.), chairman of the Oversight and Government Reform Committee, launched a series of high-profile hearings last year to explore the issues.

In April 2007, presidential candidate Sen. Hillary Clinton (D-N.Y.) pledged to save taxpayers at least $10 billion by cutting as many as 500,000 jobs outsourced to federal contractors. Clinton further turned up the heat by sponsoring an amendment in December to ensure that agencies link award fees to contractor performance.

But the reformist mood could prove fickle. Although Katrina-related abuses topped Waxman's list of concerns, broader interest in learning lessons from the hurricane has waned. A recent National Governors Association survey revealed that Katrina-inspired preparedness activity has fallen off sharply. Unless another crisis emerges, contracting reforms could take a back seat to the debate over the war in Iraq and looming concerns about health care, the economy and the environment.

Beyond Washington, 11 states have gubernatorial races this year. Six of them ? Delaware, Montana, New Hampshire, North Carolina, Washington and West Virginia ? have Democratic governors. Republicans hold the top spot in the other five states: Indiana, Missouri, North Dakota, Utah and Vermont.

Term limits prevent the governors of Delaware and North Carolina from running for re-election, and Indiana, Missouri and Washington are expected to have competitive races.

Newly elected presidents rely on governors from their party to galvanize support in the states for the presidents' agendas and lobby Congress for major administration programs.

Some governors have a clear understanding of technology and its potential, while others dismiss or downplay it. Those with firsthand knowledge of the benefits of technology will likely harness it to help achieve their goals. Contractors can expect newly elected tech-savvy governors to show an interest in 311 telephone services for distributing information, collaborative tools for law enforcement and public safety organizations, and case-management tools for improving delivery of social services.

Deadlines loom for some initiatives

A federal mandate for implementing the next-generation Internet backbone is on its way. By June 2008, agencies are supposed to have upgraded to IPv6, which features stronger security and a staggeringly large number of possibilities for unique IP
addresses.

However, agencies aren't going to flip a switch and instantly move from today's Internet standard to the new one. For years, the old and new will coexist at most agencies, which will rely on integrators to help them meet the mandate's requirements and deadline as part of a transition that will take many years.

Some information technology companies, including Lockheed Martin Corp. and Microsoft Corp., are working on in-house transition projects to learn what problems customers might encounter when they move their systems to IPv6.

Once the technical challenges are addressed, agencies will want to start taking advantage of the new standard's benefits. For example, IPv6 will enable soldiers to communicate with one another even if headquarters' communications are knocked out.

Eliminating that centralized, spoke-and-wheel method of communication will also help first responders.

Time is also running out for the Bush administration to implement driver's license standardization requirements under the Real ID Act. Even if DHS manages to trim the price tag for states, as Chertoff has promised, the program is not likely to race forward.

According to original estimates, states would have paid $11 billion to $14 billion to revamp their driver's licensing systems to comply with the act's requirements. In November, Chertoff sought to ease that burden by promising to increase federal financial support and remove certain technical requirements for the licenses. He also gave states more time to comply.

The long-awaited final regulations are expected within weeks, which should help spur progress.

In December, DHS released guidelines for $35 million in grants to help jump-start the data-sharing programs required by the law. Real ID requires states to meet new rules for collecting and publishing personal information on driver's licenses and sharing that information with other states.

Concerns about cost and privacy have made the legislation a contentious topic in state capitols. Nonetheless, it is likely to present significant contracting opportunities in 2008 and 2009, primarily in state motor vehicle departments. Administrators' efforts to align their modernization and expansion plans with the goals of Real ID are likely to be a boon for IT systems contracting.

Rough seas ahead for GSA

The General Services Administration had a tough year in 2007, with a public quarrel between its administrator and inspector general and several high-profile companies leaving the GSA schedules program.

It was the latest in a series of tough years for the procurement agency, but some observers say the future is bright.

In 2007, GSA awarded its Alliant and Alliant Small Business contracts, ending several years of anticipation.

The past year also saw the agency's reorganization realized when it dissolved two acquisition offices ? the Federal Supply Service and the Federal Technology Service ? and reconstituted them as the Federal Acquisition Service.

"You've had more permanent [leaders] than before at FAS," said Larry Allen, president of the Coalition for Government Procurement. 2007 was "really the first year that FAS has been operating as a unified organization. FAS has some good leaders."

Administrator Lurita Doan handled her dispute with the agency's IG badly, Allen said, and as a result, the oversight office has even more control over how GSA runs its procurement programs.

Disagreements over pricing led three companies to withdraw from the GSA schedules program in 2007. Sun Microsystems Inc. was the first to bolt, canceling its contract in September. In October, Canon USA and EMC Corp. chose not to renew their expired contracts. Sun had been the subject of a series of contentious exchanges among the company, the IG, Doan and Sen. Charles Grassley (R-Iowa).

"All three companies left because the IG made it more difficult to do business than the business was worth," Allen said. "The schedules program is your golden goose. You slay your golden goose, and you can all go home."

However, Hope Lane, the officer in charge of Aronson and Co.'s GSA schedule consulting practice, said the program, which includes more than 18,000 contractors, remains successful.

"The rules haven't changed," she said. "What's changed is we have people outside of the contracting officers looking at them and making them [follow the rules]. We see more companies that want schedules than want to get off."

Networx, GSA's flagship telecommunications contract, is expected to do a brisk business in 2008 and beyond as agencies rush to transfer their services from expiring contracts, often redesigning their business processes at the same time.

"There's going to be lot of activity," said Don Herring, senior vice president at AT&T Government Solutions, one of the Networx contractors.

Agencies have had plenty of time to contemplate their situations and make short- and long-term plans, he said. Now they are starting to buy and deploy products and services, and those activities will continue with particular intensity for at least the next 18 months, Herring added.

Oversight and transparency

When the Democrats took control of Congress in 2007, one of the first orders of business was to add "Oversight" to the name of the House Government Reform Committee. And oversight will continue to be a priority for the panel's chairman.
Waxman told Washington Technology the committee would continue to work for transparency and accountability in government contracting in 2008.

"There's no question that industry needs to expect that we're going to [continue to] have scrutiny," said James Sheaffer, president of Computer Sciences Corp.'s North American Public Sector. "That's hardly likely to change."

Sheaffer said congressional oversight should expand beyond conducting hearings to uncovering contracting irregularities and problems with programs.

Contractors are trying to educate Congress about what their work entails and how it benefits the country, Sheaffer said.

"There is some benefit to taking a little more time to do that," he added, because many contractors are reluctant to testify about programs that lawmakers don't fully understand.

For-sale signs go up

2007 closed with a flurry of merger and acquisition activity. In December, Wyle Inc. announced it would acquire RS Information Systems Inc., and ManTech International Corp. closed its deal for McDonald Bradley Inc. The day after Christmas, BAE Systems Inc. announced it was acquiring MTC Technologies Inc.

Many of the drivers that pushed companies to make acquisitions in 2007 remain in place in 2008 ? and there are plenty of targets. The government IT market is a breeding ground for entrepreneurs because of the relatively low costs to enter the market, so new companies are constantly being formed.

Meanwhile, investors pressure publicly traded companies to meet Wall Street's expectations for growth, and tight agency budgets sometimes leave companies with little choice but to seek acquisitions to grow their businesses.

The defense, intelligence and homeland security markets are growing but hard to enter. A common solution is to buy a company that has customers in the desired market and employees with the necessary security clearances.

Technology advances continue

In the past few years, many people have tossed around the buzzword Web 2.0 without a clear definition, although most people think of social networking and collaboration when they hear the term.

Web 2.0 actually relates to any online application, and as software developers create more interactive products for the Web, government customers are increasingly embracing the new technologies for their ease of management and enhanced functionality.

The Federal Aviation Administration is using new Web-based applications such as IBM's Lotus Forms 3.0 to move forms-based processes online, eliminating the need to manage software on individual desktop computers. FAA officials also say the technology fosters collaboration, which is a goal of most federal agencies. They will likely look for additional ways to incorporate Web 2.0 technologies in 2008 and beyond.

Web 2.0 also facilitates interoperability, which remains the Holy Grail for government IT operations. An underlying goal of many efforts, such as service-oriented architectures, is to let different systems communicate and share information.

More defense spending

Progress in Iraq will not slow defense spending in 2008, analysts predict. Military commanders often turn to technology to help with a wide variety of battlefield issues, and one area of particular interest is training.

The Program Executive Office for Simulation, Training and Instrumentation is using electronic tools to teach soldiers how to escape from a rolled-over Humvee, defeat unmanned aerial vehicles, work as a team on convoy-based missions and effectively communicate with an interpreter.

Military leaders will continue to seek technology that facilitates communications and helps create a common operational picture for commanders and troops in 2008.

Looking forward to 2009

A year from now, the future might be clearer. A new president will be taking office and appointing Cabinet members. The changes in Congress and state governments will have happened. Deadlines that loom now for various initiatives will have passed.
But the ride will continue as new leaders bring new ideas and priorities.

Contributing to this story: Doug Beizer, Michael Hardy, David Hubler, Alice Lipowicz, Nick Wakeman and William Welsh.

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