In short, the document is pretty much what analysts expected. It highlights the anticipated cuts in the Defense Department, builds on policies initiated in the 2011 and 2012 budgets and sets the government contracting industry up for exactly the sort of hyper-competitive market experts have foreseen for the last several years.
The budget proposal does reintroduce some ideas for revenue and outlays that have been shot down by various parts of Congress in previous budget battles, such as tax increases on those earning more than $250,000 a year and $360 billion in cuts to Medicare, Medicaid and other health care spending.
But contract spending would not dramatically change under this budget. The White House had little ability to radically reshape the budget given that the Budget Control Act capped discretionary spending at just under $1.05 billion and many of the contracting reforms and information technology initiatives launched in recent years are far from maturity.
The new budget request continues a slowdown in contract spending, proposing an $80 billion decline from 2010.
Changes in procurement
Much of that savings, the administration hopes, will come from acquisition reform. Increased use of government-wide acquisition contracts — vehicles that allow agencies to select multiple companies as winners and only later make individual orders — as well as reduced reliance on high-risk contracts and a long-expected 15 percent reduction in management support services contribute to the smaller bottom line.
The fiscal 2013 defense budget request — of particular interest to the contracting industry, since rocket-like growth in defense spending largely drove the industry to its current size — reflects the Budget Control Act mandate to cut more than $460 billion in defense spending over the next decade. Next year, under Obama’s plan, the Defense Department would face cuts in virtually every spending category except for operations and maintenance — the “keep the lights on” funding the department can’t ignore.
That does not mean, however, that there will be no new opportunities for contractors. Areas showing some growth amid the belt-tightening include cybersecurity (government-wide, and particularly at the Pentagon), cloud computing and clean energy initiatives.
Companies prepared to help the government shrink may also see opportunities to win new business. Efforts to close and consolidate data centers, migrate federal systems to the cloud and make IT development more modular will all require an agile contracting industry.
The takeaway? There is little in the president’s budget request to panic well-informed business leaders. Virtually all of the initiatives and cuts contained in the document have been previewed for quite some time, rewarding companies that have braced for the cuts.
Deniece Peterson is senior manager for federal industry analysis at Herndon-based Deltek, which conducts research on the government contracting market and can be found at www.deltek.com.