Competition Rates for DoD IT Contract Dollars Outpaces Overall Levels

A recent report by the Office of the Under Secretary of Defense for Acquisition and Sustainment on the state of competition in the defense industry base (DIB) concludes that there is not enough competition in the defense industry, due in part to consolidation among aerospace and defense prime contractors since 1990. The report was required under Section 5 of Executive Order 14036, Promoting Competition in the American Economy, issued by the White House in July 2021.

Competition for Contract Dollars Shows Downward Trend

In the report, the DoD looks at the proportion of their overall contracted spending that goes through competitive contracts (i.e. solicitations that have two or more bidders) as opposed to non-competitive contracts, such as sole-source contracts.  

While the overall level of contract spending ebbs and flows over the last ten years and shows consistent growth over the last five years, the proportion of those dollars which have been competed has declined or stagnated. (See chart below.)

Competition for IT Dollars is Stronger

DoD notes in their report that the competition rate varies depending upon the mission and type of product or service being procured. This bears out when we look at competition rates for information technology (IT) contract dollars over the last few fiscal years, FY 2018-2021.

The overall average DoD percentage of IT contract dollars that were competed over the last four fiscal years was 70% across all four defense components. For FY 2021, stronger competition levels at the Navy, sustained competition levels at the Army and Air Force, and rebounding competition levels among the Defense Agencies bumped the FY 2021 average up slightly to 71%, which is the same as it was in FY 2019. (See chart below.)

The reduced level of competition in FY 2020 at the Defense Agencies is largely due to a 24% spike in their overall IT contract spending for that year. FY 2021 saw spending and competitive rates more in-line with historical levels across the Defense Agencies.

In their report, DoD draws a contrast between competition levels between procurements for installation- or depot-level support (e.g. food service, facilities maintenance, logistics support, etc.) which tend to have multiple potential suppliers and competition levels for specialized procurements for “major systems (e.g., weapons, automated information systems), specialized equipment, spares (especially on aging weapon systems), and upgrades that may need to be purchased from the original equipment manufacturer (OEM) or supplier. These programs can require sole-source extensions of contracts…”

Given the DoD’s grouping of information systems procurements among specialized procurement, why is there such a difference in competition levels between the 10-year chart above and the IT contracts chart for FY 2018-2021? The answer is a matter of relative proportions. Total yearly contracted spending on IT products and services at the DoD tends to run in the $40-$42 billion range, compared to $350-$400 billion for the total DoD contracted market shown in 10-year chart. The point remains, DoD contracting dollars for IT tends to be strongly competed compared to DoD contracting as a whole. That bodes well for the health and competitiveness of the federal IT market and its members companies.

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To learn more about the major trends and drivers in the Defense IT market and get our recommendations for how solutions providers can maximize their market positioning to best take advantage of Defense business opportunities, read our report: Defense IT Priorities and Strategies, 2021-2023.