Where's the gold in the federal market?

 To hear Deltek’s Ray Bjorklund tell it, the federal market might be shrinking a few percentage points, but that doesn’t mean there  isn’t “gold in them thar hills.”

Using a mining analogy to frame his annual Federal Outlook presentation, Bjorklund said that the last decade has seen new opportunities range from abundant to hard to find, which is making winning new business more expensive and difficult.

“As gold gets harder to find, it gets more capital intensive and today we are in the hard rock processing phase,” he said. “You need to get a sense of how hard it will be to dig.”

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According to Deltek’s analysis of President Obama’s 2013 budget request, contracting dollars are down $60 billion to around $709 billion. There will be few new starts, instead the emphasis is on modernization and maintenance, Bjorklund said.

“But underneath the surface there are some very exciting new opportunities,” he said.

Many of those opportunities fall in familiar areas such as cybersecurity, command and control systems, modernization and sustainment, and IT infrastructure. But other hidden gold can be found in work involving financial institution oversight, export controls and the sale of federal properties.

There also should be opportunities to help agencies think through the policy and process implications of consolidation efforts and other subtle shifts in priorities, he said.

Of course, those are the insights coming from the president’s budget request that still will need to make it through Congress, which Bjorklund and others are giving little chance of happening.

He expects 2013 to start with a continuing resolution that will command agencies to cut 5 percent from their 2012 levels. Sequestration is a threat, but the expectation is that maneuvering between Congress and the White House will delay automatic cuts, if not avoid them all together.

In this environment, contractors should expect procurements to move slowly, which will impact cash flow. Agencies will become more risk averse and will try to use more fixed-price and low price, technically acceptable contracts, Bjorklund said.

Agencies are breaking up contracts into multiple, smaller awards, in part driven by budget pressure and a desire to get quicker results. “That creates a great opportunity for you to educate your customer on how best to do that,” he said. “Communicate to them what is the smartest strategy.”

Contractors also face pressure to control their own costs and consolidate internal processes to protect their profits, Bjorklund said.

“This is hard stuff. It takes a lot of work and labor to find the gold,” he said. “This is the time to reflect carefully on your position in the market.”