How the post-sequestration market is changing your business

It's old news that government contractor business is in a “new normal” period following a market downturn.  According to Bloomberg, government spending peaked in 2009 and dropped afterward, levelling off in 2014 – 2015.

In 2009, all government contract spending was $600 billion and by 2014 it had dropped to $450 billion, according to Bloomberg.

The 25 percent drop in government spending shows why the contractor business is challenged in the current market era.

What have Government contractors done to survive in the post sequestration era? I surveyed small, medium, and large business, 15 each for a total of 45. The survey was either on the phone or in person.

The survey found that companies have made changes in two areas:

  1. Solution development
  2. Business development

Part 1 - Solution Development

It came as no surprise that over 70 percent of companies reported changes in their approach to solution development.  And a larger majority mentioned changes in their pricing strategy.  The only group reporting no change was IT Security, where expanding demand insulated them from negative market forces.

Changes in solution development have included the following:  All contractors are trying to up their game.  Favorite methods include process improvement, careful selection of targets and partners, and the use of subject matter experts who are solution architects or customer specialists. Those who can afford it have made technology investments, such as a tool that facilitates safe system changes by automatically modeling the IT environment. 

Most respondents said, there is less effort to get an outside-the-box solution now. Instead, many are trying to win on inside-the-box creativity. For example, finding a safe IT innovation that lowers the cost.

All companies are trying to get more aggressive pricing. A popular approach is to apply automation to lower head count.  Other answers include getting more concessions from partners; and systematically replacing more expensive personnel. 

The methods companies are using to developing more competitive solutions are all over the map.  Small businesses widely agreed that the answer is to study the customer, study the program, and hire an SME to put it together. Other answers included scrubbing the requirements to the bare bones; and delivering solutions that enhance what the customer already has.

Companies gave examples of their approach to developing innovative solutions on a challenged market: On IT operations and maintenance bids, lower the level of effort for out years expecting you can learn to be more efficient. Others are prototyping rather than developing full models.

Companies widely agreed that the customer is harder to influence than ever.  However, they will see you if you have a low risk solution that decreases cost.

Part 2 - Business Development

Nearly all companies lamented the decline in the procurement environment.  Delay has made it nearly impossible for companies to effectively allocate resources to BD.   

The fall in BD budgets has forced a majority of companies to be more strategic and pursue fewer opportunities.  However, many other companies find the market is forcing them to bid a larger quantity of smaller opportunities. 

The post sequestration market has strongly affected the quantity and types of personnel working the BD process.  For present purposes, BD includes BD, capture and proposal prep. 

Our survey showed the following results:

  • 50 percent cut back on personnel
  • 20 percent added personnel
  • 30 percent remained the same

Nearly all large businesses and about 25 percent of small businesses have changed their BD organization.  Typical changes were getting “sharper” people, training program managers to help in BD, and getting more aligned with agencies.

Virtually all companies are trying to do more with less in BD.  Methods include: improving processes, using templates and tools; using more consultants and SMEs; and getting their personnel more specialized.


I’ll try to tell what I think is the moral to the story. 

This is a time of stress that brings out some of the best ingenuity in contractor companies. Each company has its own particular approach based on its strengths and limitations.  One small business now works the employees every other weekend.  A large company gives a formal class to train program managers how to help in solution selling.  One company has empaneled a Value Engineering Team, with the mission of getting all possible cost out of the solution.  And the story goes on and on. 

This same record will likely continue to play until the market substantially improves.  Some economists think this time will arrive in 2018.  But that is the subject for a future article later in the spring.  Then in the fall I will write a follow-on to this survey looking at the question: How well have the strategies employed by the companies surveyed enabled them to do financially?

Click here for the complete survey.

About the Author

Russell Smith is president of Organizational Communications Inc., a Washington D.C. area proposal consulting firm. He can be reached at

Reader Comments

Tue, Apr 5, 2016 Joey Musmar Reston, VA

Very insightful and timely article.

Mon, Apr 4, 2016 Federal Contractor Fairfax, VA

Non of this seems to be benefiting the government or taxpayer

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