The Government Accountability Office (GAO) recently released report GAO-17-244SP reviewing contracting trends across the federal government from Fiscal Years 2011-2015. This report is helpful for contractors to stay ahead of federal market trends and remain agile. The report addresses defense and civilian trends in contracting, and specifically reviewed: (1) the kinds of products and services acquired; (2) the rate of competition; (3) the use of various procurement methods and contract types; and (4) the categories of vendors providing products and services.
GAO’s conclusions include that: 1) defense obligations have decreased, including fewer contracts for planned military construction projects; 2) the majority of contracts government-wide were for services, which includes construction services; 3) there was a high rate of competition for contracts, with slightly more civilian contracts being competed; 4) most of the government-wide obligations were awarded as fixed-price contracts, while approximately half of all obligations were awarded using an indefinite delivery vehicle; 5) $100 billion in obligations were awarded to small businesses in 2015; and 6) the top ten vendors received nearly 30 percent of all obligations in 2015. GAO’s report also raised general concerns about the use of certain types of services, such as professional and management support services, which required increased management attention.
For government contractors, the report shows a tightening marketplace with consolidation in the top vendors. While defense contracting showed the largest decrease in obligations, the white house’s recently proposed budget would significantly cut funding for most civilian agencies, so the reduced marketplace may not be limited to defense spending. Given recent changes to the Small Business Administration’s mentor-protégé program, larger contractors should consider partnering with small businesses to survive in a more competitive marketplace.
Products And Services Acquired
The federal government is a large and complex organization comprised of 18 cabinet-level departments and nearly 100 other independent agencies. The government spends more than $3.5 trillion annually. Federal agencies obligated over $430 billion through contracts for products and services in 2015, accounting for almost 40 percent of the government’s discretionary spending.
Despite spending over $430 billion through contracts in 2015, the federal government actually decreased its obligations relative to 2011. In 2015, federal agencies procured approximately $438 billion in products and services, which is nearly a 24 percent decrease from 2011 levels. The biggest decrease was with defense obligations, which decreased by almost 31 percent from 2011 to 2015, from $399 billion to $274 billion. The same impact was not seen for civilian obligations, which remained fairly steady over this time, only decreasing by less than 7 percent over the same period. The military departments also awarded fewer contracts for planned military construction projects. The largest decrease in obligations for both defense and civilian agencies occurred around the time of sequestration in 2013.
The contracts awarded by the federal agencies demonstrate significant consolidation in the largest contractors. In 2015, the top 10 vendors receiving federal contracts accounted for over 27 percent of total contract obligations. For defense contracts, the top 10 vendors accounted for about 36.7 percent of defense obligations, while the top 10 vendors receiving civilian agency contracts accounted for about 17.5 percent of total civilian obligations.
As for the types of products and services acquired, approximately 60 percent of government contract obligations are for services, with civilian agencies obligating 80 percent of their contract dollars for services. Services are defined to include construction services. The top five services at defense and civilian agencies accounted for approximately 51 and 60 percent respectively of total obligations on services in 2015. These services ranged from professional and management support to IT services. Ten civilian agencies obligated more than 90 percent of their 2015 contract spending on services, including the Department of Energy and NASA, which largely contracted for research and development efforts. Defense obligations had a lower percentage of services as a result of significant investment in major weapons programs.
The GAO report did provide a warning note on certain services. Federal agencies obligated around $50 billion annually for services such as professional and management support services, which may require increased management attention. The GAO report finds that contractors performing these types of services are at a heightened risk of performing inherently governmental work.
From 2011 through 2015, the government-wide competition rate remained relatively steady at just below two-thirds of total contract obligations, with civilian agencies competing nearly 80 percent of contract obligations during that time. There is one caveat to this competition rate, however. Out of the $282 billion obligated through competed contracts in 2015, 14 percent – or $40 billion – were on contracts awarded competitively where the agency received only one offer in response to the solicitation.
Civilian agencies had a significantly higher rate of competition than DOD. Within defense obligations, there was a much higher level of competition for services than products. DOD only competed approximately 72 percent of contract obligations for services as opposed to 41 percent for products. This lower rate of competition resulted from reliance on original equipment manufacturers during the life cycle of major programs such as weapons systems and foreign military sales, which are generally noncompetitive.
From 2011 through 2015, federal agencies obligated nearly two-thirds of total contract obligations on fixed price contracts. The remaining third was on various kinds of cost contracts. In 2015, DOD obligated a higher percentage of its total dollars for fixed price contracts than the civilian agencies.
From 2011 through 2015, roughly half of total contract obligations were awarded on indefinite delivery vehicles (IDV), such as orders under Federal Supply Schedule, Government-wide Acquisition Contracts, and blanket purchase agreements. In 2015, DOD and civilian agencies used IDV for 47 percent and 55 percent of total contract obligations, respectively.
Small Business Participation
Small businesses received almost $100 billion in contract obligations in 2015. This degree of small business participation resulted from the federal government’s long-standing policy of maximizing procurement opportunities for small businesses, including setting-aside contracts for small businesses. Congress has set an annual government-wide goal of awarding not less than 23 percent of prime contract dollars to small businesses. Most agencies met or exceeded their overall small business participation goals in 2015, according to the Small Business Administration’s annual scorecard report, though not all goals were consistently met.
To further this goal, and increase the pool of responsive small businesses, the Small Business Administration has recently expanded its Mentor-protégé program to allow smaller businesses to partner with larger businesses to bid on all types of set-aside contracts, provided the partners meet the requirements of the program. This significant change will likely result in additional money obligated to small businesses, while shrinking the market for medium-sized businesses. All contractors should consider whether participation in the Mentor-Protégé program can help them maintain and grow their businesses.
Agency Specific Spending
GAO’s report finally provides detailed information for certain government agencies. For the army, the top five services accounted for just under a quarter of the department’s total obligations for services. The third largest service was the Construction of miscellaneous buildings which accounted for $1.670 billion in 2015. Additionally, $38.7 billion, or 53.3 percent, of the Army’s contract obligations were on definitive contracts and purchase orders. The remainder, $33.9 billion, or 46.7 percent, were on various types of indefinite delivery vehicles, which was a decrease from 2011 when, obligations on indefinite delivery vehicles accounted for 56.6 percent of total obligations.
As for the Department of Transportation, in 2015 more than 85 percent of their contract obligations were for services, and its top five services accounted for more than 40 percent of the department’s total obligations for services. The top service was Professional Engineering and Technical Support, while the second was Construction: Roads & Railways.
Understanding the government-wide contracting trends described in GAO’s report, a contract can remain agile and thrive in a changing marketplace.