Boom Times For Federal Contractors

Although many areas of the federal budget faced cuts this year, Bush has proposed increasing total information technology spending from $60 billion this year to $65 billion next year. IT programs linked to national security have been growing especially rapidly.

Homeland Security spent $9 billion on contracted goods and services in fiscal 2004, according to department spokeswoman Valerie Smith. It plans to spend $11 billion this year, a 22 percent increase that contractors expect will ultimately boost their bottom lines.

At some companies, including many in the Washington region, it already has.

At least a half-dozen locally based public companies that do most of their business with the government -- all with at least $250 million in annual revenue -- recorded double-digit earnings growth last quarter. While some of the growth came through acquisitions, much of it was from new contracts. Many are hiring, as are numerous companies based elsewhere that maintain a large presence locally to be close to their government customers.

The contractors' fortunes are having an impact on the local economy, driving up incomes and housing costs as better educated, highly skilled and highly paid workers flock to the region. SI added 200 employees in the past quarter. Fairfax-based SRA International Inc. added 286.

"The Washington area economy is generating more jobs this year than it did last year, and last year was not a bad year," said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. Fuller said that demand for contractors is responsible for much of that growth and that some firms are actually having trouble finding workers to fill their ranks.

As the government increasingly outsources its work, however, not everyone is sure the country as a whole is better off.

"We don't know if this is costing us money or saving us money in the long term. We just know the work is all going in one direction -- out," said John Threlkeld, a lobbyist for the American Federation of Government Employees.

The size of the federal workforce has dropped from over 2 million in 1994 to under 1.9 million now, even as the burden on the government has risen.

As federal workers retire and are not replaced, Threlkeld said, too few are left to ensure that the government gets its money's worth from contractors that have to think about their own bottom lines, not just the government's.

"It's a very cozy arrangement for contractors," he said, pointing to instances of no-bid work and contracts that go awry due to a lack of oversight. "I'd be disappointed in any IT firm that didn't generate record profits, because it seems like a pretty hospitable environment."

There are, in fact, some contractors that are not being showered in profit. Ray Bjorklund, senior vice president at FSI, a market research firm in McLean, said life has gotten more difficult for some smaller companies. With the size of contracts growing, some have a hard time selling their products without an army of service workers ready to work full time installing the product, integrating it with other technologies and fixing it when it breaks.