Survival tips for the coming fed IT market

Contractors face challenging market, but there is no need to panic

Contractors in the federal market face plenty of obstacles to growth in the coming years, but there are still reasons to be optimistic.

That was the overall theme of presentations during the annual FedFocus event presented by market research firm Input.

Senior vice president Kevin Plexico laid out an all too familiar litany of challenges in the marketplace starting with the budget pressures on agencies because of mounting debt and deficit spending.

But that can create opportunities for companies that can help agencies identify and reduce waste and operate more efficiently, he said.

Defense agencies and the military services in particular will be looking for cost savings as they are only requesting budget increases of about 1 percent, but acknowledge they need to spend 2 percent to 3 percent more on infrastructure and operations. The difference will be made up through reducing costs, said Deniece Peterson, manager of Input’s federal industry analysis.

Defense Secretary Robert Gates has proposed a variety of changes to save the Defense Department $100 billion over five years, including reducing what is spent on contractors.

“But I wonder if he is asking for 100 percent and hoping he gets 50 percent,” she said.

The picture on the civilian side is rosier, with Input predicting that the amount of money expected to be spent through IT contracts will grow from $44.5 billion in fiscal 2010 to $58.5 billion in 2015, for a compound annual growth rate of 5.5 percent.

Upcoming opportunities will focus on infrastructure and modernization; longer term health care and energy will drive more spending, said Brian Haney,  an Input senior vice president.

Currently, the government is operating under a continuing resolution, set to expire in December. The plus is that the resolution holds spending to 2010 levels, but those budgets are higher than requested for 2011, so more money is available for agencies to spend, Haney said. The downside is that it is very difficult to find money for new projects or initiatives.

On the procurement front, Input said the rise of task order contracts will continue, particularly as larger agencies continue to develop their own multiple award contracts as opposed to using governmentwide contract vehicles coming out of the General Services Administration.

“You used to see large, multibillion single-award contracts, but those have disappeared,” Plexico said.

The rise of the large multiple-award task order contracts has had the biggest impact on small and midsized contractors who may not be able to meet the board statements of work the multiple-award contracts require, he said.

“This makes subcontracting much more important,” he said.

In the current environment, contractors need to focus on helping agencies with cost savings and operational effectiveness, Plexico said.

Haney offered the tip of tracking when agencies are refreshing their technology and to make sure they are the agency’s contract of choice.

“Don’t panic,” he said. “Agencies are still spending.”

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

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