The 2011 budget cuts are largely a result of rising costs for energy and health care combined with President Obama's freeze on discretionary spending, according to the FedSources report. (Shawn Thew / Getty Images)
The president's fiscal 2011 budget request includes $36 billion less for contractors, a 5 percent decline from the current year, according to a report released today.
The cuts are largely a result of rising costs for energy and health care combined with President Obama's freeze on discretionary spending, according to the report from FedSources, a market research firm based in McLean, Va.
"With costs rising and a freeze on spending, something has to give," the report states. "One of the things that will give is will be contract spending."
The research group projects contract spending will then remain relatively flat through 2014.
Federal insourcing initiatives —especially at the Homeland Security and Veterans Affairs departments — will also siphon more money away from contractors, the report says.
FedSources projects that government spending on contractors will remain relatively flat through fiscal 2014. The report shows spending dipping from $720 billion in fiscal 2011 to below $700 billion in fiscal 2012, then rebounding to $727 billion by fiscal 2014. The fiscal 2010 budget included $756 billion for contracts.
Reduced contracting will mean fiercer competition for the contracts that are available, FedSources predicts. Contractors will have to carefully align their offerings with federal spending priorities and consider strategic partnerships with other companies that may previously have been considered competitors, the report says.
"The upcoming fiscal year may be a challenge for some contractors," the report concludes. "No matter what strategy they choose, contractors will have to start thinking of new ways to secure government business."