Trump transition: Optimism tempered with hard realities
President-elect Donald Trump is seen as a disrupter of both the political status quo and the way the government operates.
While many details are still unknown and it is doubtful his actions will live up to his rhetoric, there likely will still be plenty of action that will have a significant impact on government contractors.
During a pre-briefing for the Professional Services Council’s annual Vision conference, several executives shared their views on what a Trump administration will mean and how it will impact the market.
As part of PSC’s media policy around Vision, I won’t be quoting people directly because they are expressing personal views and not official views for their companies.
For the most part they see positives. Trump’s plan to freeze hiring of government workers will likely translate into more outsourcing to government contractors.
The huge investment in infrastructure projects will drive many new contracting opportunities. And for large engineering and professional services firms, the investment in roads, bridges and the like will bring more predictability to their markets.
The government will continue to make a shift to more digital services, and that means more opportunities for contractors.
PSC also is optimistic that there will be more of a shift toward capacity-based buying such as the cloud. The cloud still has great potential in the federal market with only 5 percent of federal leaders saying they felt their agency had made enough of a movement to cloud.
Other opportunities for government contractors will be driven by new technologies that are gaining footholds in the market such as mobility, Everything as a Service, big data, the Internet of Things, and machine learning.
But while there are opportunities, there are also great challenges, but these are challenges any new administration would face.
There are macro-economic conditions that will present roadblocks to significantly increasing spending. Current projections have the budget growing from about $3.9 trillion in 2016 to $6.3 trillion in 2026. That’s a compound annual growth rate of 5 percent.
Meanwhile, projections for economic growth are at about 2 percent. This will continue to put pressure on discretionary spending. But the challenge with discretionary spending is finding the places to cut. “Discretionary spending isn’t as discretionary as people think,” one official said.
The expectation from PSC is that the topline number for the budget will not change much, but underneath that there will be significant changes.
As others also have predicted, the Budget Control Act and the threat of sequestration will likely be dealt with, at least for the short term.
But without stronger economic growth, any president will be significantly challenged to increase spending.
Besides a stronger economy, the government, particularly Congress, needs to work more efficiently. They have to move away from the reliance on continuing resolutions, which is particularly challenging for the Defense Department.
Not having predictable and timely appropriations undermines DOD’s ability to plan and implement.
As for Trump’s immediate impact in the market, it might be best to wait. Contract awards and other procurement activity take a sharp uptick traditionally between the election and the inauguration, but by January, spending plummets. One spokesperson attributed that to the fact that so many positions need to be refilled with the turn of an administration, and all of the inertia that comes along with that.
Congress is expected to punt on an omnibus spending bill during the lame duck session, which means the continuing resolution will be pushed well into the second quarter of the fiscal year. This will make new starts even harder to come by.
The takeaway I was hearing is that disruption is coming in what and how the government buys, but it might just take a little while before it gets here.
Posted by Nick Wakeman on Nov 16, 2016 at 1:17 PM