The boom years of government contract spending appear to be at an end, according to a market analysis of the 2010 budget released Tuesday.

The government's procurement budget is expected to shrink, then stagnate, once Recovery Act spending dries up in fiscal 2010, according FedSources' 2010 Budget Outlook.

Between fiscal 2008 and fiscal 2014, government contract spending will see a compound annual growth rate of 2 percent, as the nearly 13 percent rise in stimulus-fueled spending in 2009 expires and budget deficits cause government to rein in spending, said Ray Bjorklund, senior vice president and chief knowledge officer for FedSources.

"That's a very, very slow growth rate, 2 percent," Bjorklund said.

President Barack Obama's fiscal 2010 budget proposal contains nearly $580 billion in contract spending, down 6 percent from the stimulus-boosted $616.9 billion in spending permitted in 2009. The congressional budget resolution passed in April authorized only $560 billion in procurement spending next year.

"That's a significant disparity between Congress, who says ‘don't spend as much on federal contracts,' and the Obama administration saying ‘we want to spend about $580 billion,' " Bjorklund said.

As the administration and Congress shift their priorities from defense to domestic spending, legislators want to pump more money directly to their constituencies through grants and targeted earmarks, limiting opportunities for federal contactors in these tough economic times, he said.

"And if you look forward to 2011, it's going to get worse before it gets better" for contractors, Bjorklund predicted.

In 2011, FedSources projects contract spending will dip $18 billion from Obama's 2010 request to $562 billion, a 3 percent decline. The continued slump in spending is due in part to deficit pressures, Bjorklund said.

The Obama administration has said it's going to fix the budget deficit by the end of its first term, he noted. "How do you do that? You spend less money," Bjorklund said.

This restricted spending will last through 2014. Bjorklund predicts a meager 1 percent growth between 2011 and 2012. Spending will grow between 2 percent and 3 percent annually over following two years.

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