Contractors Expect a Continuing Dropoff in Federal Business in 2013

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“I think the realities of the budget crisis are going to hit more dramatically in 2013 than they did in 2012,” said Rob Burton, a former senior procurement official at the Office of Management and Budget who is now with the Venable law firm.  By OMB’s count, total contract spending dipped almost 5 percent last year, falling from about $538 billion to $513 billion. While that amount was still roughly double the figure from a decade ago, the Obama administration is continuing to press agencies for further cuts, particularly through more reliance on “strategic sourcing,” which combines purchases across agency lines to get the government a better deal.

Under an initiative unveiled last month by OMB, all major agencies must name a senior official by Jan. 15 to coordinate strategic sourcing efforts. Also in the works is an interagency strategic sourcing leadership council that is supposed to come up with ideas for more products or services suitable for multiagency purchases. As the procurement pie shrinks, Burton said, more contract awards are being put on hold. He also foresees a continued rise in the number of bid protests from companies fighting harder to hold on to work. From fiscal 2008 through last year, the number of protests filed with the Government Accountability Office climbed 50 percent from 1,652 to 2,475, according to GAO figures.

Regardless of whether across-the-board spending cuts known as sequestration actually come to pass in March if President Obama and Congress fail to agree on a deficit reduction plan, “budget austerity is absolutely real,” said Alan Chvotkin, executive vice president and counsel at the Professional Services Council, a contractor trade group. But the reductions are not hitting every agency equally, he said. At the Health and Human Services Department — charged with implementing the 2010 health care law — contract spending ticked up about 2 percent in the first quarter of fiscal 2013, he said.

On the policy front, Chvotkin expects Congress to revisit legislation to strengthen cybersecurity and beef up controls on information technology spending. Both could affect contractors. Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, for example, wants to create “centers of excellence” that could help agencies handle complex IT procurements, according to a draft plan in circulation. The goal is to “save money and increase the effectiveness of the money that is spent,” Issa spokesman Ali Ahmad said last week.