Is a $750B market a reason to despair?
The easy way to interpret Ray Bjorklund’s annual FedSources budget
outlook presentation is that the sky is falling for government
The market is definitely in the midst of tough
times, particularly when compared to the first eight years or so of this
century when it seemed you could fall over and make money in the
Bjorklund pulled no punches in his remarks.
off, the market addressable by contractors stands at $819.1 billion for
fiscal 2011 and will be $752.1 billion in 2012, according to the
president’s budget request. Compared to 2010’s $773 billion market, the
2012 figure is about a 1 percent decline, Bjorklund said.
Remember those numbers for later.
The continuing resolution
saga of 2011 has created what Bjorklund described as an “elusive”
budget. “It is just really hard to get your head around some of the
numbers,” he said.
That elusiveness makes 2012 a “murky” budget
year, Bjorklund said. A better approach is to look at the market in two
year block, comparing 2012 to 2010, he added.
House of Representatives pushed for cuts during the 2011 budget
negotiations, and there is plenty of momentum for more cuts, Bjorklund
“How Congress dealt with 2011 will set the state for 2012
and beyond," he said. "Remember, [the Obama administration] is planning
the 2013 budget right now."
The cuts so far have not had a
significant impact on contractors as reductions came from the
cancellation of poorly performing projects and the taking away of unused
and unobligated funds, he said.
The downward pressure, of
course, is being fed by the economy and the budget deficit. The pressure
to cut also has become a bipartisan issue.
Bjorklund’s presentation on the projected 2012 included plenty of red ink:
- 10.6 percent less for contractors at the Army.
- 10.6 percent less at the Energy Department.
- 9.5 percent less at the General Services Administration.
- 5.1 percent less at Homeland Security.
The reduction at the Army is largely driven by the step-down in
activities in Iraq and Afghanistan, Bjorklund said. Demand is dropping
for things such as combat vehicles.
Contract spending will
remain one of the first areas to get squeezed as agencies and Congress
look to make cuts. The “throttling effect” is how Bjorklund put it.
So where are the bright spots?
are increasing in areas such as technology and innovation, investments
in job creation and support for veterans. For example, President Barack
Obama has pledged to double exports, which will create an opportunity
for better export and trade control systems.
Department is expecting to increase spending on technology, program
development and student loan processing. Those are opportunities.
The market is still adjusting. The delay in the 2011 budget created pent-up demand.
that won’t necessarily mean a flood of dollars. According to Bjorklund,
contractors need to help their customers as they reprogram dollars and
The rich opportunities will come to those
contractors who can help their government customers become leaner and
operate more efficiently, he said.
Now for my opinion. Remember, the budget numbers at the beginning.
This is a huge market -- $752.1 billion. There are a lot of
opportunities in there. Are you going to have to work harder for them?
Sure. Is there more competition? Most definitely. Will you need to be
creative and bold? Let's hope so.
A point Bjorklund conveyed several times is the need for agencies to
rescope and restucture projects. To me, that's a signal for contractors
to bring their best and brightest.
Posted by Nick Wakeman on Apr 27, 2011 at 9:34 AM