Trends in Government Contracting

There are obviously many changes occurring in the Government contracting marketplace over the last couple of years.  You don't have to think back too far to remember the threat of canceled contracts due to Sequestration or the Government Shutdown.  The military draw down in Iraq and Afghanistan and the mandated reduction in defense spending have had an effect on all government contractors. 

Let's look at the overall contract spending first.  When you look at the change in spending from year to year (adjusted for inflation, constant dollars) you will see that the level of spending has declined every year since 2009.  The largest decline was last year (2013) where spending declined 12%.  Certainly a lot has been written about the contraction in federal spending over the last several years so this number is not unexpected.  The reductions, year over year, tend to correlate with the administration change in the government.  What is interesting to me is the levels of spending in the states. 

It is always interesting to me to see that the states closest to Washington D.C. tend to get the most funding.  There are exceptions (like California & Texas to name a couple) where there are high concentrations of high tech work for the DoD, NASA and DoE.  One of the biggest trends that I think is of interest to government contractors is the year over year agency spending changes.  The following agencies all had an increase in spending in 2013 over 2012:

The departments that reduced spending included US AID, DoD, GSA, Interior & State.  When you consider the magnitude of the spending by the DoD, their reductions exceeded the budgets of some of the smaller department entirely.  So naturally the reductions in DoD spending have the largest impacts.  The reductions in DoD spending (around $45B or 15% reduction of $308B) are not compensated for by increases in Education spending (increase of $18B or 27% of about $70B).  So while some contractors may loose opportunities with the DoD, other opportunities with the Department of Education are available.  If a government contractor is flexible enough in their offering, they may be able to adapt to this change.

Other interesting trends include a 62% reduction in spending on space vehicles in 2013 over 2012.  Certainly the retirement of the Space Shuttle may have had an effect there.  I thought it was also interesting that there was a 41% reduction in spending on drones and a 44% reduction in spending on food.  Most of this could be attributed to the reduction in overseas military efforts by the US. 

Finally, the trend in the type of contracts issued is interesting.  The number of cost type contracts has increased from 27% of all contract vehicles in 2009 to 32% in 2013.  Fixed price contracts went from 57% to 63% of all contract vehicles in the same period.  Time and Material contract types appear to be falling out of favor, dropping from 5% to 4% in 2013.  The biggest change was in the contracts that were not identified or reported.  The total number of solicitations has increased from 58K in 2009 to over 77K in 2013.  Since the dollar value has gone down over this same period, this must mean that the average contract value has also gone down. 

So we can see that government spending is changing.  Not only in the amount but by which department and how much each contract is worth.  The contract types appear to be changing too.  Multiple award type contracts appear to be increasing in numbers as well where GSA Schedule spending is decreasing over the last 4 years.  Government contractors should pay attention, especially in their particular markets, to changes and trends to stay ahead of the competition.  The market is changing.