Trends in Government Consulting — Turbulence Ahead

Friday morning I attended an interesting event put on by the Association for Corporate Growth, National Chapter. ACG National is a who’s who of the DC business community and puts on quality events. I’ve been a member for two years and volunteer on their marketing committee: http://www.acgcapital.org/

On Friday Stan Soloway was addressing trends in government contracting. Stan is President of the Professional Services Council and expert in the areas of government outsourcing, acquisition and procurement. To paraphrase Dickens, right now it’s the best of times, and the worst of times to be providing professional services to the federal government.

It’s the best of times because the market continues to grow. The government services industry is now a $270 billion market, and it will continue to grow because the government simply doesn’t have the program and project managers inhouse to handle ever more complex procurements and implementations. It’s the worst of times because there is a lack of consistency to the market, and in Stan’s view government contracting is becoming a proxy for congressional frustration over the Iraq war.

The lack of consistency has a lot to do with the use of continuing resolutions since Congress and the President can’t agree on budgets. 2009 may be the third straight year, which makes forecasting when contracts happen very difficult. Soloway described three main issues moving forward.

  • In January 2009 the new President might have different priorities, but most military dollars are fixed, not discretionary. Iraq is ongoing, BRAC (Base Realignment and Closure) costs have been woefully underestimated, and military healthcare costs are escalating faster than the private sector. In this environment more money will be spent outsourcing, even though the government is growing their internal program managers 15% per year. This just can’t keep up with demand, or backfill federal retirements.
  • Policy — there will be a lot more shouting, but the argument against contracting is over. The government can’t do without it. But there is plenty of debate about how to construct the business relationship. Unfortunately, it’s complicated and Congress doesn’t have many members who really understand all the nuances. One recent loss is VA Congressman Tom Davis, who really did understand. According to Soloway every spending bill now has specific procurement language that must be deciphered, and there is a lot of fuzzy language. He predicts there will be a lot of contractor bashing during "show trials" on the Hill to occur in the May timeframe. A lot of the frustration directed at contractors is really caused by the lack of a quick fix for Iraq.
  • Competitiveness — perception vs. reality. Soloway cited a lot of coverage that portrayed a big increase in sole sourced contracts. But look beneath the surface, and you see that only "full and open" competes are considered in those percentages. Well, the majority of awards today are either SBA set-asides or task order level contracts, neither of which are open. In fact, task orders are up over 300%. He does think there is a competitiveness problem, however. Because the SBA size limits are too low, contractors have to be either very large, to have a chance at prime contracts, or very small, to get set-asides. This leads to a "balkanization" of the contracting community — there is no support for the mid-size contractor, no seeding of the market with growing companies like in the private sector. The SBA is looking to revise the size definitions, but are very late in doing so.

I’ve seen some of these issues first-hand working for b2g clients at Strategic. We’ll see if the next Administration and Congress can change the dynamic at all.

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