WT Business Beat

By Nick Wakeman

Blog archive
Nick Wakeman

Business cycle or new era? How are you approaching today's market conditions?

Are current market conditions part of a normal business cycle, or are we entering a new era in government contracting?

The answer to that might depend on what part of the market you are looking at. Perspective is everything.

Technology-wise, it is a new era, for sure; cloud, mobility, big data and the interconnectedness of everything will only increase.

But there is still a debate over where things like lowest-price, technically acceptable contracts and tight budgets are part of a cycle or more of a long-term phenomenon.

When the market started tightening a few years ago, a lot of people talked about how it was a return to more historic levels of growth. The market had grown giddy during the first seven or eight years of the 21st century, when double digit growth and margins were commonplace. When the bottom fell out of that, the market suffered a tremendous hangover.

But you should be over that by now because we are well into a new phase. Many call it the new normal, and one person I spoke with recently described it as a “lasting dynamic.”

The elements and signs of this lasting dynamic revolve include:

  • Low price over best value
  • Companies focused on lowering and controlling internal costs
  • Large businesses shedding management layers
  • Traditional business model falling by the wayside

Price and cost are the driving factors behind all four of these factors.

Will we be stuck with LPTA? We might not call it that, but low-price will carry the day for many years going forward.

As agencies become more comfortable with commercial products and commercial ways of doing business, i.e., the cloud, it will become increasingly difficult for contractors to charge a premium for their services, unless they can make a very compelling business case for doing so.

Even with a strong business case, it is hard to imagine there being much more than a 10 percent differential between a lower cost losing bid and a higher cost winning bid.

The challenge is for companies to operate at lower rates and remain technical leaders. If you can do that, you’ll be a winner in this new era of government contracting.

The new dynamic in the market is creating opportunities for some companies. The prime example is Amazon Web Services winning a $600 million CIA cloud contract over IBM. While that contract remains under protest, the sign is clear – upstarts (relative to the government market) can take on established players and win.

Technology and subject matter expertise will remain critical, but delivery, performance and price will the deciding factors of success.

But this is still a huge and diverse market, and companies that smartly navigate their way forward under the current conditions can find more of their share of success.

Posted by Nick Wakeman on Aug 08, 2013 at 12:11 PM


Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close
SEARCH
contracts DB

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Read More

  • Is SBA MIA on contractor fraud? Nick Wakeman

    Editor Nick Wakeman explores the puzzle of why SBA has been so silent on the latest contractor fraud scandal when it has been so quick to act in other cases. Read More

Webcasts

  • How Do You Support the Project Lifecycle?

    How do best-in-class project-based companies create and actively mature successful organizations? They find the right mix of people, processes and tools that enable them to effectively manage the project lifecycle. REGISTER for this webinar to hear how properly managing the cycle of capture, bid, accounting, execution, IPM and analysis will allow you to better manage your programs to stay on scope, schedule and budget. Learn More!

  • Sequestration, LPTA and the Top 100

    Join Washington Technology’s Editor-in-Chief Nick Wakeman as he analyzes the annual Top 100 list and reveals critical insights into how market trends have impacted its composition. You'll learn what movements of individual companies means and how the market overall is being impacted by the current budget environment, how the Top 100 rankings reflect the major trends in the market today and how the biggest companies in the market are adapting to today’s competitive environment. Learn More!