Analysis of the president’s budget request typically yields some interesting clues for anyone willing to go deep enough into the data to reveal them. The numbers reveal shifting agency priorities as well as hints to the sea changes that could affect the potential $608 billion in fiscal 2015 contract spending.
There are a number of areas that contractors should consider as they navigate the remainder of fiscal 2014 and plan for 2015:
It’s time to rev up your business development process. Brand new programs will be few and far between, so wrestling operations and maintenance (O&M) work from current contract-holders will be critical. O&M tends to be a significant percentage of agencies’ budgets, and it is often a target for savings that can be reinvested in new programs. That means it can also yield additional opportunities for the right contractor.
For example, the Internal Revenue Service received $313 million for business systems modernization, which will be available until the end of fiscal 2016. While this flexibility certainly doesn’t apply to all programs, it could reflect a growing understanding within Congress about the pace of technology evolution and need for consistency in funding.
The Bipartisan Budget Act signed by Congress late last year offset sequestration. As a result, fiscal 2014 contractor-addressable budgets in most segments are higher than expected.
That high is tempered by possible declines for fiscal 2015. Infrastructure, health care and cybersecurity remain agency priorities.
In an increasing number of cases, Congress has tied budget increases or flexible expiration dates to reporting of contractor management and risk mitigation strategies. As agencies work to improve program management, this scrutiny will only increase as agencies attempt to prevent contracting failures (thank you, Healthcare.gov) by instituting more contractor visibility moving forward.
The Defense Department is under transformation as budget pressures continue. Declining O&M, professional services and equipment budgets reflect a shift to near-term readiness programs as war spending declines and the government reduces the size of its forces.
This means that contractors will have to follow the money as the services reassign, reprioritize and re-scope program dollars.
The silver lining: Defense is trying to protect key investments related to force readiness, cybersecurity and intelligence, surveillance and reconnaissance capabilities.
Although budgets are declining, mission requirements are not. Though agencies will remain budget conservative, they will continue to require contractor support.
Deniece Peterson is the director of federal industry analysis at Herndon-based Deltek, which conducts research on the government contracting market and can be found at www.deltek.com.