Ross Wilkers

MARKET OUTLOOK

September remains the hottest month of the government's fiscal year

Final contract spending figures for fiscal year 2017 are yet to be determined but we do have a greater glimpse into how busy the month of September in recent years, particularly for defense agencies.

Defense Department contract obligations in September have been roughly double those in other months over the last five fiscal years, according to a Congressional Research Service report first obtained by Secrecy News.

DOD agencies obligated $43 billion in September 2016 at 14 percent of the full fiscal year’s $298 billion in obligations, CRS said. Agencies obligated $25 billion on average every month in fiscal 2016.

The trend of heavy September activity picked up steam in the final week of the month, which totaled $19.8 billion versus the full-year average of $5.7 billion, CRS found. That final week total compares to $26 billion for the entire month of August and $21 billion for July.

Continuing resolutions for at least six months at a time have become the norm in recent years and the fiscal 2017 omnibus spending bill was not signed until May, which gave agencies only five months under full appropriations.

That has shown up in how defense agencies spend contracting budgets during the July-September quarter. Deltek analyst Kevin Plexico told Washington Technology’s Fourth Quarter Spending Spree event on July 20 -- which Deltek helped produce -- that DOD agencies spend 31 percent of their annual contracting budgets in the fourth quarter compared to 22 percent to 23 percent in the other three.

Expectations arethat the government’s rush to spend in its fiscal fourth quarter and September in particular would continue this year. Recent earnings reports from government services companies have so far been mixed in terms of their individual bookings during their September fiscal quarters.

CSRA and ManTech International both reported strong award seasons with respective 3.3 and 4.5 book-to-bill ratios, which measure how fast companies grow their contract backlog versus drawing down from that to realize revenue.

On a trailing 12-month basis, CSRA and ManTech have respective ratios of 1.8 and 2.2 to suggest continued growth.

Others have reported a different story for their award flow. CACI International had a 1.2 book-to-bill ratio for the September quarter -- its fiscal first -- with $1.2 billion in awards with a large amount of recompete contracts getting extended rather than awarded.

CACI Chief Operating Officer John Mengucci said in a Nov. 2 earnings call with investors that agencies “frankly in the midst of major reorganizations” bridged contracts. That comes amid agency reorganization plans being due to the White House in September as part of the Trump administration’s fiscal 2019 budget request.

Leidos’ book-to-bill ratio of 1.2 in the September quarter -- the company’s third – was impacted by protests against many awards, including the $7.8 billion Social Security Administration IT Support Services Contract on which Leidos is one of three primes. CEO Roger Krone told investors Nov. 2 Leidos has potential revenue “in the billions” held up by protests to the SSA contract and others.

Engility Corp.’s book-to-bill ratio of 1.1 reflected delays on awards for two large intelligence programs and a pair of contracts that were protested. CEO Lynn Dugle told investors Nov. 2 “two large intell programs that we thought would be awarded in May and June are still not here as we enter November.”

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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