Delayed contracts, rush to end fiscal year collide in September

Industry is facing a September that promises to be busier than the usual fiscal year's end. But they also must manage through delays in major procurements.

Contract opportunities are out there and being actively pursued by companies but the crucial last stage of an award from the agency is sometimes left waiting right now.

Delays on certain major contract awards are continuing to be a fact of life for industry as the end of the federal fiscal year on Sept. 30 looms, executives at the contracting trade group Professional Services Council told reporters at a Tuesday luncheon.

A shorter budget timeframe for agencies to work under and vacancies in politically-appointed positions during the transition to a new administration are all part of that picture, PSC Executive Vice President and Counsel Alan Chvotkin said. This echoes comments from some contractor executives to investors during second quarter earnings reporting season.

“There are certainly major programs that require some kind of political guidance and the absence of people in those political positions… is having some impact on those kinds of programs,” Chvotkin said at the luncheon. “Those with larger-dollar values or new initiatives that are coming are being affected. They’re being slowed down with decisions being delayed. I see that more on a case-by-case basis than on a government-wide slowdown.”

Solicitations are continuing to get released and contracts are being awarded, Chvotkin said. Contracting market analysts largely concur that September will be an active bookings period for companies but also confirm that larger opportunities are being impacted.

Nearly all of Deltek’s Top 20 opportunities for fiscal year 2017 have seen the award date pushed further out. For example, Leidos has the Navy’s NGEN IT services contract recompete in its pipeline but “its best read of that is it could be delayed a year,” CEO Roger Krone told investors in July.

The only two major awards on that list with unchanged anticipated award dates are the Air Force's JSTARS surveillance plane recapitalization program lined up for October and T-X trainer jet slated for December.

Brian Ruttenbur, government services and defense electronics analyst at Drexel Hamilton, told Washington Technology that the current fiscal year has seen many current contracts being extended through modifications.

“Really since the Trump administration took over, we’ve seen more of that slippage,” Ruttenbur said.

Joey Cresta, public sector analyst at Technology Business Research Inc., estimated total unclassified contract obligations fell nearly 20 percent over the trailing 12-month period ended June 30 for the government IT and professional services companies TBR monitors.

Cresta told me the comparison is not necessarily a “one-to-one” of receiving an action obligation and then converting to revenue, which happens over time in future quarters. But he has observed some revenue headwinds in the first half of year from a sluggish procurement environment.

“The other big factor is what the third quarter looks like with it being the end of the fiscal year. That could go a long way to rectifying some of the issues we’ve been seeing,” Cresta said.

Another large factor for agencies, Chvokin said Tuesday, is the shorter time they have had to obligate funding with full appropriations in place only since March.

“Agencies only had six months to do 12 months of work,” he said.

That compressed timeframe will likely lead to a “very good bookings quarter” for industry even in light of some delays, Ruttenbur told me.

“I think this will be an exceptionally strong abbreviated year to make these awards,” he added.

This final stretch of fiscal 2017 also coincides with the timing of the federal response to Hurricane Harvey and the deadline to raise the debt ceiling on Sept. 29, one day before the fiscal year ends.

Analysts at Goldman Sachs lowered their forecast of a government shutdown to 35 percent from last week’s odds of 50 percent, according to CNBC.

So where will the action be in what in recent years has become heavy September? Ruttenbur told me military training and readiness looks to be the “strongest area” to watch for bookings, in line with President Trump’s repeated calls for increasing defense spending and a renewed military buildup.

Another factor for agencies in awards during the compressed period is how their acquisition workforce decides on who wins, according to Cresta. A shortened calendar and slow pace of leadership appointments pressures the acquisition workforce with a high volume of business and backlog to clear, he said.

This is especially true for more highly-technical procurements, he said. For those, agencies could default to an “easily supportable conclusion” that favors lower cost bids, Cresta said.

“It’s easy to say this is the lowest cost offering versus needing to understand intricacies in areas such as analytics on who’s offering a differentiated capability,” Cresta told me. “If they don’t have technical knowledge of what differentiates one vendor from another, cost is an easy default to back up on.”