That more flexible model is one of several ways in which federal agencies are amending their contracting practices to accommodate uncertainty over the federal budget. If across-the-board cuts, called sequestration, occur in January, budgets will be even tighter.
“Agencies are under enormous pressure to reduce spending and achieve efficiencies so they’re looking at their contracting practices and making changes ... to help them get to that goal,” said Alan Chvotkin, executive vice president and counsel, at the Professional Services Council, an industry group.
“In those areas where they have discretion — study and analysis, operations and maintenance, even in the new program area — we’re seeing lots of caution being taken in solicitations, in the options agencies are considering and even in the award decisions,” Chvotkin continued.
In 2010, GeoEye won a chunk of a contract worth $7.3 billion, called EnhancedView, to provide satellite imagery and other services to NGA over a 10-year period. Each year must be individually renewed, however, and the agency’s decision to break the latest renewal into two parts raises questions about future funding.
We “believe it gives them the option to fill up our cup again if they get the money from Congress,” chief executive Matt O’Connell said. “We’re glad they have the flexibility if Congress puts the money back.”
The news sent GeoEye’s stock tumbling last Monday as doubts settled in about the company’s ability to meet financial projections if it does not receive full funding from the agency, which makes up a large portion of its revenue.
In a conference call last week, O’Connell sought to soothe the market’s worries, saying that GeoEye has made an effort in recent years to add clients beyond the federal government. The company also sells images to foreign governments and corporate clients in such industries as real estate and transportation.
“It would take us time to re-market the capacity we have with NGA and I’m not saying there is an immediate replacement with revenue ... but we’re gratified we have a lot of international customers and there is demand all around the world,” O’Connell said.
Letters sent by the NGA only pertained to the forthcoming fiscal year, which begins in September. The agency could still renew the contract in full in subsequent years, though future funding levels are even more uncertain.
GeoEye’s chief rival, DigitalGlobe, which shares in the EnhancedView contract, said the agency renewed its portion for next fiscal year in full. GeoEye offered to buy the Longmont, Colo.-based firm for $792 million in May, but the offer was rejected.