Innovate to thrive in 2009

This year could be the best of times and the worst of times for government contractors.   
 
Hopes in 2009 are buoyed by the prospect of a president and administration that believe in the power of technology to transform government. The campaign of President-elect Barack Obama is a shining example of how collaboration and communications tools can be used to bring about profound change.

Yet at the same time, the industry faces an economy in shambles, a government saddled with tremendous debt and agencies expected to have precious few resources for new projects.

The challenge of the new year
Federal contractors and industry experts agree that the promised massive economic stimulus package is job No. 1 for the Obama administration.

“The economy is going to be a significant challenge,” said Dennis Stolkey, senior vice president for EDS Corp.’s U.S. public sector. “There is going to be pressure on new information technology spending. There might not be a lot of new projects.”

“There is a real lack of leadership during the transition,” Puvvada said. “People are waiting to make decisions based on what the new administration will do.”

For some agencies, it might be nine to 12 months before substantive contract awards are made, said Kevin Plexico, senior vice president of operations at Input, a market research firm.

Executives are also bracing themselves for more oversight, though some doubt that the Obama administration will be able to reduce the role of contractors.

“The Obama administration will be pretty conscientious about looking at contracting issues,” said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, a government market consulting firm. The Bush administration emphasized outsourcing, but under Obama, “government employees will be given a real fair chance for demonstrating that they can do the work,” he added.

However, even if Obama wants to return outsourced work to government employees, “it’s going to take quite a while to change, and there’s still going to be a requirement for contract support,” said Duane Andrews, chief executive officer of QinetiQ North America. “That just doesn’t go away.”

During the campaign, Obama often talked about more effective and efficient use of contracts, “which is improving the contract process, contract award, contract administration and those things which all of us think could result in some meaningful savings,” said Stan Soloway, president and CEO of the Professional Services Council and a Washington Technology columnist.

The new buzzwords for contractors are transparency and accountability, which industry can embrace, Soloway said. But the “question is: What does that mean and what are the specific steps that will be taken?” he added.

A bright spot for contractors is that Rep. Henry Waxman (D-Calif.) moved from the House Oversight and Government Reform Committee to the Energy and Commerce Committee. His replacement, Rep. Edolphus Towns (D-N.Y.), does not have the same antagonistic style.

However, the drive for transparency and accountability could increase the cost of doing business, said Paul Strasser, chief operating officer at Pragmatics Inc., a systems integrator.

“We’ll need to move money to comply with these new reporting requirements such as E-Verify,” he said.

Government contractors must use E-Verify to certify that their employees are U.S. citizens or legal foreign workers. “That takes away from the pot of money available to run the business,” Strasser said.

Pressure to innovate
But when agencies are saddled with budget problems and increased demands for services, opportunities open for contractors.

“The government will be trying to find ways to save money,” Stolkey said. Although that can mean cuts, it is a “double-edged sword. That could actually work well for us.”

Companies have the opportunity to show customers how to save money by taking on infrastructure projects, consolidating systems and introducing green technologies, Stolkey said.

Government agencies will push to retire existing systems quickly, Strasser said. “That will be the springboard to free up funding so that agencies can roll out new programs and new ways of doing things,” he said.

Another trend Strasser sees that could benefit small and midsize companies is the move away from large-scale projects.

“Agencies are going to move toward smaller procurements because there is a sense these large programs are inefficient,” he said.
Contractors also need to be prepared for customers to ask them to conduct more pilot projects.

The government is increasingly asking contractors to design and build prototypes at the contractors’ expense. “That puts a huge responsibility and risk on the companies,” Stolkey said.

The current credit situation and the lack of liquidity in the market can make it a challenge and a risk for companies to fund pilot projects, Puvvada said.

But if the government is to embrace innovative contracting techniques, the acquisition workforce must be empowered, experts say.

“The biggest single challenge the government has is the ability to adapt to the accelerating pace of innovation,” said Phillip Bond, CEO of the Technology Association of America, formerly the Information Technology Association of America. “That extends to the procurement folks sitting across from the contractors. You need people who have the authority to be nimble and quick.”

The Obama way
Bond and others are heartened, though, by the way Obama’s team used technology during the campaign.

“It is hard not to be fundamentally optimistic when you look at it through the prism of the campaign,” Bond said. “My opinion is colored obviously by their very successful tech-based and tech-savvy campaign. They really understood what the cutting edge had to offer.”

Now, the transition teams want to bring that “mind-set, centered on innovation, into every single mission of government,” Bond said.

High on the list of priorities in the Obama camp are broadband access, health care, energy, education, green technologies and cybersecurity.

For example, energy issues aren’t just about finding new sources of energy but about being smarter about how existing sources are used, Puvvada said.

“We talk about green IT, but it has to be much broader than that,” he said.

Because of the reputation the Obama campaign has earned, contractors are expecting the administration to push for greater use of collaboration and communication tools.

“This new administration is really not looking at business the same way as the previous administration,” Strasser said. “It all points to a culture of innovation and the belief that innovation can help us conquer the challenges that America faces today.”

The Obama team wants to create a more open and collaborative government, and “technology is wrapped all around that,” Bond said.