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Nick Wakeman

Contract modifications skyrocket with end of fiscal year

A term that should be synonymous with the end-of-year spending spree is “modification,” as in Company X has been awarded a modification to a previously-awarded contract.

The Friday Defense Department digest of contract awards had 38 contract modifications out of 111 announced awards. Yes, that 111 contract awards number is pretty extraordinary in itself but it is the end of fiscal year 2018 after all. On Thursday, there were 24 modifications out of 85 awards.

What the high number of contract modifications tells us is that the government buyers really like to use existing vehicles at the end of the fiscal year. This puts a premium on existing relationships so you can be in the right place at the right time to win this business. And you can’t until the end of the year to capture those last minute deals.

The modifications are not small chunks of money either.

Northrop Grumman received a $289.3 million modification to an existing Army contract for engineering, logistics and program management activities to develop and test software and hardware. This is for work under a missile defense contract the company won in 2008. The modification pushes the work out until Dec. 31, 2019.

There were a couple other modifications for weapons systems that were larger than the Northrop award but that was the biggest one that was IT related. Most IT-related modifications were under $50 million.

For example, KBRWyle received a $40.2 million modification for an Air Force satellite control network upgrade. The modification brought the total value of the contract to over $100 million.

I don’t think there is anything inherently wrong with these contract modifications as they likely would be made at some point anyway.

But the rush at the end of the fiscal year indicates the pressure on government buyers. It just isn’t healthy nor a good way to operate. But it has become standard operating procedure for the federal government.

With the early passage of the defense budget, fiscal 2019 might be different. Buying should even out over the course of the year with early purchases perhaps counter-balancing the end of year spree.

Time will tell.

Posted by Nick Wakeman on Oct 01, 2018 at 12:44 PM


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