Forecaster tells contractors to lower expectations after Recovery Act jolt

New administration, stimulus package make 2009 'a year of transition' says FedSources

This is a year of transition for the federal budget, and government contractors should expect to live with flat budgets for the next few years, according to government market analysis company FedSources.

Although the federal information technology market remains strong, contractors will not see anything like double-digit growth for the next few years, Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, said today at the company's Annual Federal Outlook Conference.

He said the 7 percent growth rate in federal IT spending that some analysts have projected likely will be a more modest 4 percent growth rate through 2012.

Bjorklund said analyses of the Obama administration’s budget plans and projections indicate three interrelated transformations are affecting the relationship between industry and government.

One is the continuing shift from defense spending to civilian agency spending, which began in the final years of the Bush administration.

However, going forward defense spending will decline at a faster rate than domestic spending, which Bjorklund characterized as “the long-term play.” Defense Department and Homeland Security Department spending “will continue to be a short-term market play,” he said.

The other two transformations that FedSources identified were a shift from stimulus spending to normalcy and from outsourcing to in-sourcing.

He said the American Recovery and Reinvestment Act is a temporary stimulus package that most likely will not be repeated. Moreover, he added, much of that money is being dispersed as grants to states and localities, and cannot be counted on for federal contracting work.

In addition, the administration goal of reducing outsourcing and expanding federal in-sourcing will create opportunities for any contracting activity dealing with the workforce, including recruitment, training and human resource management information systems.

Bjorklund said the three pillars of the Obama administration’s budget plans will be energy initiatives, with health care reform a distant second, followed by education. The top domestic priorities will be contracting opportunities.

As for overall trends, he cautioned that the continuing national economic malaise will steer more companies to go after federal contracts and that, in turn, will increase competition for fewer government contract dollars.

About the Author

David Hubler is the former print managing editor for GCN and senior editor for Washington Technology. He is freelance writer living in Annandale, Va.

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