Research has shown that an average of more than 30 percent of federal contracting dollars are spent in federal fiscal Q4 (July to September) as agencies seek to use up their budget with a ‘use it or lose it’ mentality. This Q4 ‘spending spree’ typically creates great opportunities for government contractors to win more business, but this year especially.
With the continued shift towards something resembling more normal, pre-pandemic business activities in 2021, and all signs pointing to a significant amount of contracting dollars up for grabs in the remainder of the federal fiscal year, the environment for businesses to take advantage has never been better. Still, that doesn’t mean it’s a cakewalk to winning a share of this spend.
How Q4 spending differs by month and government agency
Businesses need to understand how to prepare and get organized to maximize their potential during the federal spending spree that occurs in July, August and especially September. During September alone the value of federal contracting award activity that is released accounts for approximately 16 percent of the entire year, making it by far the most lucrative month on the federal contracting calendar — and the best month to target.
The timing of spending also depends heavily on the federal agency in question. Different departments vary widely in their spending cycles. Some agencies that spend heavily on operations and maintenance functions, such as NASA and the Department of Energy, spread out their spending evenly throughout the year. On the other hand, civilian agencies such as the State Department and the U.S. Department of Agriculture tend to rely heavily on Q4. Understanding an agency’s buying pattern is important for determining which agency to focus on at the end of the fiscal year.
This is particularly important for small businesses, since small business contracting is particularly sensitive to Q4 spending. More than 40 percent of federal small business spend happens in the last quarter of the federal fiscal year. A large percentage of total small business contract value is made up of IT (information technology) and AEC (architecture, engineering and construction) spend — but small businesses in all industries should pay particularly close attention to the spending rush at the end of the fiscal year.
What makes the Q4 2021 spending rush different
Of course, the effects of the COVID-19 pandemic (as well as the federal government’s response) will have a significant impact on this year’s Q4 spending. In 2020 and 2021, Congress passed a significant amount of legislation providing trillions in funding in response to COVID-19.
The result? COVID-19 contracting spiked in Q3 of 2020, but it continues to account for a significant share of federal contracting. This has thrown historical quarterly spending cycles somewhat out of balance. The end result may be that this year’s rush is not quite as robust in comparison to past years. On the other hand, appropriations delays and continuing resolutions have amplified the importance of contracting in Q4.
While many factors around this year’s spending rush have created a somewhat different environment for businesses, the main approach that contractors take will be similar to that of past years. Companies need a strategy for maximizing success in Q4 specific to the agency, particularly for segments and agencies that rely heavily on Q4. And to succeed they must understand the spending patterns of their government customers in order to win their share of the spending rush.