Publications & Articles

At our March Dulles Chamber’s GovConn session, we had a terrific analysis of government contracting trends, risks and opportunities from Deltek’s Jim Rogers. Here are some of the take-aways for those of you who missed it. If you would like the full PowerPoint presentation, just let us know.

• Insourcing doesn’t seem to be working well for the government & continues to be reexamined.
• The government continues its multi-year trend of pushing fewer, but bigger, contract vehicles. Thus, except for the special contractor, if you are not on these Multiple Award or GWAC vehicles, you can be locked out of getting government work.
• The government is looking for contractors who can sell and deliver Cost Savings, Efficiency & Simplification.
• It’s taking longer to get paid.
• Contractors’ borrowing costs are increasing. Their net profit margins were pushed down in 2010.
• DCAA audits appear to be fewer in number, but are taking much longer, are more costly, and have more inexperienced new auditors.
• The increased mandatory and debt spending by the government is projected to dangerously overrun federal outlays – this is a wild card going forward.

Trend Focus. In 2009 we had stimulus & bail out spending, fixed price initiatives, DCAA/DCMA revamps, conflict of interest focus, insourcing initiatives, & good work in energy, healthcare and security. In 2010 and 2011, we are really facing deficit and debt spending problems, slower invoice payments by the government, inexperienced DCAA staff & bottlenecks, a government focus on whole “programs” but still good work in energy, healthcare and security.

Multiple Award.Contracts Way Up. Deltek’s study confirms that GSA schedule purchases have trended down over the past 4 years, while Multiple Award Indefinite Delivery Contracts have increased dramatically (but GWACs have remained fairly steady for the past 4 years).

Get on a Team. The government’s increased use of Multiple Award Contracts and GWACs are the “channels” for contractor work. They’re not specific work, but they’re becoming the key path to be able to get the work. Many contractors will need to become part of a team and be able to respond to requests for proposals ASAP. Partnering is becoming even more important with fewer prime spots, and even the government is requiring it on some contracts.

Where’s Government Spending. It appears that insourcing may be slowed while taming the growing deficit becomes a big government challenge. We can expect an overall reduction in discretionary federal spending. But there will likely be somewhat higher spending in some areas such as IT, energy/environment, healthcare & cyber-security.

What’s Government Looking For & Contractor Growth. The government is looking for more competition & less risk, fewer layers of subcontractors, but more SB/SDB/SDVOB participation. Overall, large and mid-sized firms found it harder to grow organically over the past year, but the smaller firms had higher rates of growth. Large & mid-sized firms were looking at M&A activity to increase their growth. They were looking to find companies with complimentary skills, work in the right agencies & contract vehicles that might be expanded.

Project Management. The government’s continuing focus on Earned Value Management (“EVM”) to measure project performance and progress still shows little sign of widespread adoption by contractors. It seems only the really big companies are any good at it. At the same time, the government is mandating PM certifications and is adding pressure for industry to have more Project Management Professionals. Large firms are leading the way with PMP certifications, but mid-sized firms are not far behind. It’s hoped that PMPs will improve the success rate and make proposals more attractive.

Cash Crunch on Contractors. There continues to be a “cash crunch” for many contractors. The government has slowed in paying invoices. DCAA’s slow and extended reviews appear to be another bottleneck on contractors’ cash flow that continues into 2011. Further, net profit margins were down last year, with increased borrowing costs to cover cash flow needs. This was particularly true with large firms. But mid-sized firms faired only slightly better.

DCAA/DCMA Costs. While there may be fewer DCAA audits, they are lasting much longer and appear to focus on more minutia. This, combined with DCAA’s & DCMA’s inexperienced hires, is further slowing cash flow. With the less experienced auditors, instead of waiting and playing the back & forth game with the audit, contractors may want to be pro-active and in effect do it for DCAA & get it over with, get paid and move on.

Expanding work, cash flow and profitability can be challenging, but the Deltek Report shows trends that provide both opportunities and risks for contractors.

Please call us if you would like to discuss the substantive aspects of this presentation or for more information on upcoming GovConnections events. The Dulles Chamber asked OF&P’s Government Contracts Practice to continue as the lead law firm partnering with them on another year-long series on the changing dynamics of the government contract industry. Our next session is in mid-May.We welcome your participation at future sessions!

David Lawrence 703-218-2181
Brian Darst 703-218-2140
Matthew Keller 703-218-2117
On Behalf of OFP’s Government Contracts Practice