The new contracts agencies plan to put up for competition in the coming year will be significantly smaller than in past years, a new analysis has found.
The top 20 contracts anticipated for fiscal 2013 represent a potential $92 billion worth of business over their lifetimes — 38 percent less than the value of last year’s top 20, which totaled $149 billion, according to a report by Deltek market researchers released last week.
“Certainly, 2013 and 2014 are looking to be kind of the low point in the cycle that we’re in of declining spending,” said Kevin Plexico, vice president of Deltek’s federal information solutions. “We think it will pick back up after that.”
To illustrate the trend, the smallest contract on Deltek’s top 20 list last year was a Defense Department contract to research threats involving weapons of mass destruction, worth $2 billion. This year, the smallest contract, for health marketing communication services at the Centers for Disease Control and Prevention, has an estimated value of $870 million.
The top contracts for both years are relatively the same in size. Last year’s top contract, the Army’s Enhanced Army Global Logistics Enterprise (EAGLE) contract, worth up to $23.5 billion, was awarded in September. The No. 2 contract in 2012, the Air Force’s Training Systems Acquisition III program, worth $21 billion, was delayed and thus became the biggest contract opportunity for 2013. But such large contracts are rare.
Agencies across government, including the Defense Department, have issued guidance to their procurement staffs to limit the number and size of contracts, Deltek analysts said.
And starting this year, agencies are required to justify new indefinite-delivery, indefinite-quantity contracts worth more than $100 million to the Office of Management and Budget to ensure they do not overlap with existing contracts. One reason for the trend in lower ceiling values for new contracts is the plethora of existing contracts, said Ray Bjorklund, chief knowledge officer at Deltek.
“It’s the recognition that there are other contract vehicles out there that are very viable, and you don’t necessarily have to have your own uniquely configured [indefinite-delivery, indefinite-quantity contract],” he said.
Another reason is the intense scrutiny large contracts are getting nowadays.
“Sometimes those approval processes become black holes that programs don’t emerge out of,” Plexico said. “To adjust for that, we’ve seen some of the Defense agencies effectively lower the scope of some of their contracts so they can accelerate them and get them through the procurement process.”
Despite efforts to weed out duplication among new contracts, some is clearly evident among the top contracts.
For example, several of the information technology products and services expected under the National Institutes of Health’s proposed Chief Information Officer-NEW contract could also be found on NASA’s Solutions for Enterprise-Wide Procurement V contract.
Plexico noted that NASA’s governmentwide acquisition contract program has been more successful than NIH’s.
“It’s not as clear that the NIH program is going to be as successful, and I think there is a fair question [of] what’s the unique value proposition that they’re offering the agency,” he said.
Some of the contracts on Deltek’s top 20 list this year were carried over from last year, pushed back because of delays in the procurement process.
For example, Air Force officials were expected to issue the solicitation for its TSA III contract in March 2012 and award the contract by May 2013, according to Deltek’s analysis last year. The $21 billion contract is intended to provide training systems for nearly 40 Air Force aircraft and other programs, such as the C-17 cargo plane and the B-1 bomber.
More than 100 companies are listed as interested vendors for the contract on FedBizOpps.com, including some of the 11 contractors that worked on TSA II, such as Lockheed Martin, Rockwell Collins, Boeing, CAE, L-3 Communications, FlightSafety Services Corp. and LB&B Associates.
Deltek predicts that the final solicitation for TSA III will be out in November, with final awards by June. That may be optimistic, considering agency officials updated information on FedBizOpps this month saying they “still do not have a good estimate for [request for proposal] release.”
“It’s such a large acquisition; there are various review steps,” said Marcia Hall, who works in the TSA III contract office.
The procurement, which is seven times larger than TSA II, has to get approval from the assistant secretary of Air Force acquisitions, she said.
Large contracts are often held up by increased scrutiny on what the contracting office is procuring and whether there is adequate competition, industry experts say. For example, Defense agencies are supposed to notify the Defense Procurement and Acquisition Policy director, Richard Ginman, of any proposed acquisition of services with an estimated value of $1 billion or more. Delays have also been caused by an inexperienced and overworked acquisition workforce, industry experts said.
“The main reason why some of these programs get slipped to the right is an insufficient qualified acquisition workforce,” Bjorklund said. “They’re still trying to rebuild it in some ways.”
Companies deal with the uncertainty by using formulas to calculate the risk associated with expected delays, industry experts said. But many companies use teams of people to work on the proposal, and the cost incurred while bidding on government work can be included in a contractor’s indirect rates, experts said.
“It costs millions and millions of dollars … while you mark time, waiting for government to make the next move,” Bjorklund said.
If an agency can estimate that a contract will be delayed for a certain period of time, such as six months, that makes it easier for the company to hold off on hiring or move people to other jobs, experts said. However, agencies are typically not good at communicating, and announcements are usually made month by month, said Alan Chvotkin, executive vice president of the Professional Services Council trade association.
“This is a good example of where delays by the government cost contractors and, in some respects, come back to the government,” he said.