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Inside the multibillion-dollar end-of-year buying frenzy

Sep. 30, 2012 - 03:47PM   |  
By SARAH CHACKO   |   Comments
A customer service representative at the NASA Solutions for Enterprise-Wide Procurement program office works to fill orders on Sept. 26.
A customer service representative at the NASA Solutions for Enterprise-Wide Procurement program office works to fill orders on Sept. 26. (Gannett Government Media Corp)

At first glance, it was hard to tell that millions of dollars were pouring into one of the government’s largest information technology contracts last week.

But the stacks of contract orders piling up in a corner of a NASA contracting office — a sprawling, nondescript cube farm in Lanham, Md. — on Sept. 26 signaled that the end-of-fiscal-year spending rush was underway. By 9 p.m., the day’s take had grown to 277 orders worth $39 million.

“This is when the federal government does a lot of [its] spending,” said Jon Wright, program manager for Alvarez and Associates, one of the 42 vendors on NASA’s mammoth IT contract, called SEWP (Solutions for Enterprise-Wide Procurement). The contract has a potential value of $213 billion over seven years.

“Things we’ve been working with them on for the last six to nine months all happens now.”

As perennial as the cherry blossoms in spring, so is the annual late-September flurry of activity across the country by hordes of federal procurement staffs and their vendors. On the last day of the fiscal year — Sunday, Sept. 30 — many federal contracting offices, including the NASA SEWP office, answered phones and emails until midnight to allow agencies to spend their last dimes of fiscal 2012 and avoid having to return leftover funds to the Treasury.

For 2012, however, the year-end rush is likely to come up shy of past years’ spending, experts say. Budgets are down, new directives are in force calling for lowered contract spending in some categories, and there is a hanging uncertainty of severe automatic, across-the-board budget cuts in January, called sequestration, that make many investments now seem unadvisable.

If the rate of contract spending in 2012 follows past years, the government will spend $529 billion for the year, roughly $8 billion — 1 percent below the $537 billion spent on contracts the previous year, according to federal procurement data.

Spending on NASA SEWP, for example, will likely be lower for 2012, according to NASA figures. In 2011, agencies spent $2.4 billion through SEWP; as of Sept. 27, agencies had spent only about $1.9 billion in 2012.

But that didn’t mean it wasn’t busy at the SEWP office last week.

The 39 mostly contracted staff there split shifts to stay open three hours past the usual 6 p.m. closing time all week to process a blizzard of orders from customer agencies.

The orders, ranging from a few thousand dollars to tens of millions, came in by email and fax throughout the day, covering a wide range of services: a $6,027 order for software maintenance services for one defense agency; a $77,826 order for software renewal services at another defense agency; and a $24,391 order for training services by a civilian agency. SEWP officials requested that agency names not be disclosed since the orders were pending.

Staff keyed in the purchase information by hand into SEWP’s electronic system, which confirms to the ordering agency that the order has been placed and tells the vendor what work it has to perform.

Al Marshall, who manages the 42 vendors on the SEWP contract, fielded calls from companies making last-minute additions to their contracts so they could compete on work proposals.

At the other end of the office, financial manager Theresa Kinney called Defense Department contracting officers to coach them on how to use the SEWP vehicle.

If 2011 is any guide, orders on the last day of 2012 will easily top $100 million. And the last week of September will net nearly 1,700 orders totaling roughly $338 million — about 7 percent of the orders and 14 percent of the dollars spent on SEWP over the entire year.

Roughly one-third of the government’s contract spending happens in the last quarter, according to federal procurement data. That’s when agencies figure out what money wasn’t used on major projects throughout the year and hurry to use remaining dollars before year’s end.

Activity on pre-awarded, multiple-vendor contracts like NASA’s SEWP zooms toward the end of the fiscal year because they are so quick and easy to use. To illustrate, in 2010 and 2011, agencies spent between $50 billion and $60 billion on such contracts in each of the first three quarters and more than $90 billion in the last quarter, according to federal data.

As for 2012, Wright said revenue at his company, which works only with the federal government, has increased, but not as much as it has in the past. Manufacturers and other suppliers he buys from anticipate their revenues to be down by 20 percent or more, primarily because of changes in what the government is buying, he said.

Agencies seem to be spending less on servers and laptops and more on cybersecurity systems and niche software, Wright said.

Contractors have noticed federal budgets dropping over the last few years, and many companies laid off employees or delayed investments to reduce costs for their clients, said Ray Bjorklund, chief knowledge officer at Deltek, a market research firm.

However, budget cuts are anticipated to be deeper in coming years, and some contractors will be caught off guard, Bjorklund said. The president’s 2013 budget request shows an 8 percent reduction for goods and services typically provided by contractors, he said.

“Maybe you’re going to be fine with the contracts you have, but you might not get new contracts and you might not be able to grow,” Bjorklund said. “Everybody’s going to have to tighten their belts a little bit because the government is doing it.”

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