MA

Surviving Sequestration: Is a Flood of Federal Contract Dollars Coming?

Published: April 05, 2013

BudgetDEFENSEForecasts and SpendingSequestration

At a luncheon I attended recently, Ms. Kathy Cutler, Director and Chief Information Officer at the Defense Logistics Agency (DLA) mentioned that her agency’s sales to DoD customers had been slow in the first half of fiscal 2013 due to the uncertainty surrounding Sequestration.  Ms. Cutler did not say what her expectations are for the remainder of FY 2013, but her comment made me wonder if the trend at DLA is visible in the contract spending at other federal agencies.  To analyze the question I used data from the Federal Procurement Data System (FPDS) showing federal obligations reported as of  March 31, the end of Q2 FY 2013, under the top 10 Product Service Codes (PSCs).  I chose to look at spending under the PSCs because of the visibility it provides into both the rate of federal spending in fiscal 2013 and the kinds of things agencies are buying.  Finally, I took the fiscal 2013 numbers and compared them with data from fiscal 2011 and fiscal 2012 to gauge the rate of spending to date versus recent historical norms.
 
Due to the funding bottleneck we like to call Sequestration, agencies still have a large percentage of their average contracting dollars to spend in the last 6 months of FY 2013.  Add to this the fact that agencies have obligated far fewer contract dollars to date than is typical and the outlook for vendors in the federal market over the next 6 months is rosy.
 
Federal Spending by Top 10 PSCs – Civilian Market Segment
 
 
Taking a look at the Civilian agencies first, the dark blue columns in this chart show the 10 PSCs under which Civilian agencies spent the highest dollar amounts in FYs 2011 and 2012.  The totals for both years have been averaged to provide a single number for comparison.  The light blue columns show the total number of dollars obligated under these PSCs as of March 31.  This analysis yields several insights:
  • FY 2013 dollars obligated under PSC M181 Operation of Government-Owned/Contractor Operated Facilities is equal to 42% of the total average dollars obligated in FYs 2011 and 2012.
  • The lowest percentage of FY 2013 dollars obligated so far is under PSC R499 Other Professional Services.  This is equal to 23.5% of the total average dollars obligated in FYs 2011 and 2012.
  • The highest percentage of FY 2013 dollars obligated so far is under PSC 9660 Precious Metals Primary Forms.  This is equal to 57% of the total average dollars obligated in FYs 2011 and 2012.
  • The percentage of dollars obligated to date under technology PSCs D399 Other ADP & Telecommunications Services, R425 Engineering & Technical Services, and 7030 ADP Software equal 31%, 25%, and 50% respectively, suggesting that spending on technology solutions will remain robust.
Federal Spending by Top 10 PSCs – Defense Market Segment
 
 
Analysis of PSC data over the same timespan at Defense agencies shows similar trends.  Readers should note that the totals in the red columns are underestimates given that the DoD is typically weeks, if not months late in reporting obligated contract dollars.  Also note that some of the Product Service Codes are different from those in the Civilian segment.  A few of the trends worth highlighting include:
  • The DoD has obligated only 15% of the contract dollars that it historically spends under PSC R425 Engineering & Technical Services.
  • Defense agencies have obligated only 13% of the contract dollars that they historically spend under PSC D399 Other ADP & Telecommunications Services.
  • Defense agencies have obligated only 31% of the contract dollars that they historically spend under PSC R499 Other Professional Services.
  • Defense agencies have obligated only 19% of the contract dollars that they historically spend under PSC R706 Logistics Support Services.
Deltek’s Take
 
The media has been saturated with stories of budget cuts and falling federal spending, but the reality is that agencies were hesitant to spend contract dollars during the first half of FY 2013 due to policy uncertainty from Congress and the White House.  Now that agencies have budgets for the remaining six months of FY 2013, we expect agency spending will be significantly higher through the end of September.  Agencies are likely to be very aggressive in trying to obligate as many dollars as possible before the end of the fiscal year.  With the exception of some multi-year appropriations and funding authorized for reprogramming, agencies must expend their funding within the fiscal year or risk losing it. The challenge will be speed.  Overworked contracting shops catching up on stalled procurements and getting a late start on coming acquisitions will struggle, but the fact remains that the federal Government has tens of billions of dollars to spend on vendor-provided goods and services.  Is your company ready to capture some of this business?