How will 2018's fiscal year-end spending spree play out?
- By Ross Wilkers
- Jul 20, 2018
Federal agencies have billions upon billions in contracting money to spend with just over two months left in the fiscal year almost over and that may not be enough time for them to get all that business done.
Here is the situation as we've laid out before: the omnibus spending bill to fund agencies for the current 2018 fiscal year was passed March 23, almost seven months late. Nearly every agency got an increase with $80 billion for defense and $63 billion for civilian.
That foreshadows a fiscal year-end spending rush through September unlike in years past but under the specter of constant short-term continuing resolutions in recent years. Which means agencies are crunched to get obligations out the door fast in such a short window, executives at government contracting trade group Professional Services Council told reporters Wednesday.
"So much additional money was added in the budget caps and in the appropriations... it's a real challenge on the agencies to spend that money. The acquisition workforce may be taxed to the limit of their ability to process all of the demands that are on them," said Alan Chvotkin, PSC executive vice president and counsel.
Since the March budget's passage, market executives have indicated some uncertainty over exactly how the federal fiscal fourth quarter will play out in terms of contracting obligations. During a June event hosted by investment bank Houlihan Lokey, a panel of CEOs noted a pickup in contracting-related activities by agencies but said the timing and volume of a spending spree is to be determined.
Around this time last year, many of those same companies complained about delays on major contract awards amid the transition to the Trump administration. And the FY 2017 budget was signed in May, even later than that of FY 2018. So agencies get two months more with a full budget for this fiscal year than the last one.
What is looking more certain for this fiscal year is that defense agencies are the main drivers of the July-September contracting rush versus civilian. PSC President and CEO David Berteau told reporters Wednesday that prior to March 23, defense agencies acted were going to get more money than they did in fiscal year 2018.
Civilian agencies are another story as they were ready for and spending as if they would get the large cuts originally proposed by the Trump administration for fiscal 2018. They now get 25 percent more to spend than what they programmed for but are still obligating at lower levels than the last fiscal year, Berteau said.
"So for (civilian) agencies they've got a huge gap to make up and only half a year in which to do it, so it's not surprising," Berteau said. "We looked at the third quarter contracting obligation data for civilian agencies, it's 6 percent below fiscal year 2017 with 12 percent more money... that says to us a big gap."
Defense agencies are slower to report contracting obligation data due to security concerns and other reporting requirements. But Berteau's comments echo those of contractors' chief executives during their April round of earnings calls with investors where they signaled that most of the July-September spending action would center around defense.
As those CEOs pointed out at the time, the Defense Department and intelligence agencies have processes in place to be able to move money faster onto contracts. The DOD budget increase passed in the March omnibus was only 4 percent above their budget request to Congress also, which signals the Pentagon's readiness to get more funds than anticipated.
That increase also includes a 5-percent increase in DOD operations and maintenance funds, which much of their year-end spending rush in years past has centered around. Analysts at investment bank Cowen & Co. wrote in a July 17 report for investors they expect "robust catch-up awards in the September quarter" and especially if prior awards were delayed from the calendar year's second quarter, April-June.
For civilian agencies, the ability to play catch-up may be constrained by what the acquisition workforce can handle. PSC is already hearing anecdotes from member companies that contracting officers are saying their plates are full for the rest of this fiscal year, Berteau said.
And as he pointed out Wednesday, civilian agencies typically spend between one-third and one-half of all contract obligations in the fourth quarter.
"(That) says the capacity may constrain, as well as the timing and the pace and the magnitude and the directional change of the numbers, it's almost like a perfect storm of benefits all arriving at the wrong point in time," Berteau said.
"It's still going to end up being a good year, a lot of good work gets done and a lot of stuff comes out."
Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at firstname.lastname@example.org. Follow him on Twitter: @rosswilkers. Also connect with him on LinkedIn.