Among the budget delays and economic worries, government contractors are still finding opportunities for growth. But they also are focused on controlling costs and investing in infrastructure.
Contractors are reassessing their go-to-market strategies and looking for ways to control costs because of budget delays and the expectation that government IT spending will flatten for several years.
But, they insist, they are not unduly worried about the future of their industry.
“We haven’t seen that [decline] yet," said Stanton Sloane, president and CEO of SRA International Inc. "We are anticipating that things will slow down a bit."
Until Congress passes a 2011 budget that President Barack Obama signs into law, “I don’t know whether that’s a big problem or a little problem,” he added. “The uncertainty is a problem.”
“The environment today just requires a lot of focus and attention," said Unisys Federal Systems President Ted Davies. "I’m not sure I would describe it as anything like business as usual because I think the contracting environment is tight.”
Davies said that in addition to the budget delays, there are also delays in issuing requests for proposals and contract awards. “The government is working very carefully to preserve its dollars," he said. "It’s a tight environment today.”
“This is not a good industry right now for the timid,” said Brad Antle, CEO of Salient Solutions Inc., a federal IT and engineering company that he co-founded in 2009.
Focus on opportunity
Many company executives “don’t want the hassle of where we are right now in terms of trying to manage through the budget morass,” said Antle, who added that he believes this is actually a time of opportunity for companies that can remain flexible and focus on the growth areas of government.
“I’m actually excited about where we are, not concerned at all,” he said.
And Antle is not alone in being bullish.
“I’m pretty excited about the prospects going forward,” said Paul Cofoni, president and CEO of CACI International Inc., who said he preferred to view this period as “a sea of opportunity.”
Although CACI derives about 75 percent of its revenue from the defense sector, Cofoni called Defense Secretary Robert Gates’ five-year, $100 billion Defense Department reprioritization plan “more of an opportunity than a threat” because it targets mostly large DOD programs that do not involve the company.
“Neither Republicans nor Democrats are suggesting that we should have radical cuts in defense,” he said.
Davies said he doesn’t believe Unisys Federal will be severely affected by Gates’ plan because his clients are mostly civilian agencies. Some of the DOD consolidation initiatives play into Unisys’ strengths, he said, so “we actually see some opportunities.”
Not having a federal budget so far into the year “is problematic for all of us in the industry,” Cofoni said. “Our customers can’t get a long-term view of what their budgets will be” because under the continuing resolutions that have kept the government functioning, agencies pay contractors only for work already awarded, he said.
“But they’re only funding us in small chucks or increments,” Cofoni said. “Whereas they might have been funding us in three-month or six-month increments, now they’re funding us in a month increment or, in some cases, two-week increments.”
Sloane, who has experienced several federal budgeting down cycles, said, “This one is a little complicated because the macroeconomic situation is a little worse than I remember them to be.”
However, current contract work is keeping SRA busy.
In addition, the company’s balanced client base — about 50 percent of its work derived from the defense and intelligence sector and the remainder from the civilian agencies — “gives us a little bit of buffer,” Sloane said. “More of an issue for us is delays in the new contracts [being awarded] versus the number of new opportunities.”
Make sound investments
In any case, echoing other contracting executives, Sloane said this is not the time to cut back on pursuing new business or investing to meet new opportunities.
“If anything, we’re increasing that investment,” he said. “When times get tight, you have to be more competitive. You have to write better proposals; you have to have better solutions for the customers that win the jobs.”
Richard Pineda, who was named vice president and general manager of Dell Services Federal Government in 2010, said the simultaneous budget uncertainly and the tight spending constraints offer an opportunity to take what he called an aggressive offense to increase sales.
“It’s a back-to-basics management” for Dell Services, Pineda said, citing prudent strategic planning, financial discipline and a focus on execution.
He said he and his executive team are working “to find the recipe to grow and thrive” despite the continuing resolutions, which, he added, could happen again in 2012.
Citing Federal CIO Vivek Kundra’s call for agencies to act more like commercial entities and share existing IT infrastructure when possible, Pineda said new business opportunities could include storage capacity and help-desk consolidation.
Agency CIOs “are actually champing at the opportunity” to share, Pineda said. “That’s an easy growth path to me.”
To take advantage of that opportunity, Pineda said he is hiring solutions and subject-matter experts who can create the synergistic opportunities that Kundra wants.
At the beginning of the year, fiscal uncertainty and the prospect of flat budgets in 2012 and beyond prompted SRA International to reduce its workforce by about 50 employees who were not directly involved in government contracting, such as the human resources specialists and legal staff members, Sloane said.
“What we’re trying to do is keep our finger on overhead costs generally,” he said, citing other steps such as reducing power consumption and cutting back on mobile communications charges and travel expenses.
Antle said Salient Solutions is dealing with those challenges by maximizing the use of its facilities.
“As we grow or combine, we’re trying to make sure that we have a strategy that gets the most use out of the facilities space that we have access to,” Antle said, because it’s easier and cheaper to lease temporary space when it’s needed than to pay for unused space over the course of a lease.
“You don’t want to plan too far out in terms of space requirements because the future is uncertain,” Antle said. “The further out you get, the more difficult it is to plan correctly. And the wrong call can be devastating.”
To those who believe that cutting sales or marketing staffs should be among the first steps taken toward reducing a company’s budget, Antle said that’s the wrong approach.
“It’s easy to cut them because you don’t feel the effects for a year or two, or sometimes even longer,” he said. “So in the short term it feels good. It positively impacts your bottom line, but you’re sacrificing long-term growth.”
Bill Parker, Salient’s chief operating officer, said hiring employees who are strong in several areas of sales or marketing can help a company grow without overburdening the payroll.
Antle said it’s also important to recognize the best talent among the back-office employees who do not contribute to billable hours. They are often best equipped to expand their capabilities and handle new challenges should it become necessary to reduce staffing.
“That lets you keep the organization lean in the back office,” Antle said.
And it would be even better to find ways for the back-office staff to generate some revenue, perhaps by billing a customer for some in-house program control, supply chain management or purchasing work, he added.
“That now takes an expense and turns it into revenue,” Antle said. “You get a twofer, you decrease your expense and increase your revenue.”
Company benefits are another area that needs to be carefully vetted for potential savings, Antle said.
“You need to make sure that you have plan alternatives to keep costs down and put employees in control of their benefits,” he said. “If you’re spending money on benefits and they don’t value it, it’s a waste of money.”
Antle said many businesses will spend according to their business plans rather than base their expenditures on actual performance.
“That’s a real trap that some businesses fall into,” he said. “Not spending ahead of your performance is a critical issue. Treat every dollar of spending like an investment.”
“I start with, 'What am I going to protect?' ” Davies said. “If it’s a tight environment, what do you try to focus on?”
He said his spending centers on the three assets that he believes are crucial to Unisys Federal’s long-term success: staff, product and sales.
“This is a marketplace that requires lots of time and energy to be spent to sell work," Davies said. "We’re trying to build a long-term, sustainable, profitable business,” Davies said.
Unisys Federal is also trying to maximize its existing solutions to save on research and development costs.
“Why go out and re-create the wheel when you don’t have to?” Davies asked. “We’re spending a lot of time making sure that where we’ve built solutions for commercial clients we can leverage them in the federal [sector] and vice versa. That obviously saves you money by not having to develop from scratch.”
Davies added that he and his team have always examined prospective contracts closely before bidding on them, but now they are now looking even more closely.
“You can spend a lot of money on opportunities that actually never come out because there’s not enough money in the [agency] budget,” he said.
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