Contracting market set to shrink in fiscal 2011

After a decade of booming contract spending, the federal acquisition market is expected to tighten considerably in fiscal 2011, with fewer opportunities for companies to win major awards, according to an industry research group. Technology deals are likely to be among the exceptions.

The fiscal 2011 budget shows a nearly 5 percent decrease in overall contract spending and market experts expect intense competition among vendors for a smaller pool of taxpayer dollars.

"The government is doing everything possible to consolidate and spend as little money as possible in this upcoming year," said Ashley Bergander, manager of federal programs at FedSources, a McLean, Va., research firm.

Much of the drop in contract spending, she said, can be attributed to the Obama administration's efforts to bring jobs back in house. The Defense Department announced in August that it was cutting its spending on service contractors by 10 percent during each of the next three years. Many of the jobs contractors currently perform will be insourced to federal workers, particularly at the military services, although other tasks could be eliminated altogether, Defense officials said.

"It's been a big push by the current administration to hire more government workers, especially to complete a lot of services," Bergander said. "So we are seeing a lot less contracting out there for actual services."

Earlier this week, FedSources released its annual report detailing the top 50 contract opportunities -- based on their size and relative importance for the government -- in fiscal 2011, which began on Oct. 1.

With few exceptions, most of the largest upcoming contracts are recompetes of expiring deals, in which agencies are seeking multiple vendors, rather than a single source, to perform the work. The procurements generally will be firm fixed-price, incorporate full-and-open competition and involve more small businesses, Bergander said.

For example, during the first quarter of the fiscal year, the Homeland Security Department is expected to recompete its $22 billion Enterprise Acquisition Gateway for Leading Edge Solutions requirement. The departmentwide contract for information technology services and commodities will be divided into two source selections: one that is unrestricted and another reserved for small businesses.

Homeland Security's EAGLE contract is expected to be the second-largest award of fiscal 2011, behind the $30 billion Enhanced Army Global Logistics Enterprise contract, also known as EAGLE. The hotly anticipated Army contract is noteworthy in its value and scope, encompassing a range of domestic and international functions, from training and logistical support to financial tracking, software maintenance and project management. Army's EAGLE will be available to all government agencies and possibly foreign governments.

Agencies also appear to be taking new approaches to issuing follow-on contracts. A separate report released this week by the market research group INPUT found single contracts frequently are broken into multiple-award, indefinite delivery-indefinite quantity efforts and then rolled into larger and expanded programs.

"Procurements are being reconfigured to accommodate new contracting approaches that are designed to increase opportunities for small business and level the playing field for those firms to compete with their peer group," the INPUT report said. "This trend makes sense as agencies struggle to conduct acquisitions with a growing shortage of contracting personnel and yet strive to award an increasing percentage of contract dollars to small businesses."

Overall, FedSources expects an increase in the cybersecurity, health information technology and energy markets, with a declining emphasis on major weapons, aircrafts and NASA space programs. INPUT also is forecasting an uptick in emerging technology approaches, such as cloud computing.

"Any expectations industry may have had regarding a shift in focus to social programs under the Obama administration have not yet materialized in major contract opportunities," INPUT wrote.

INPUT, recently purchased by Deltek, examined the top 20 upcoming contract opportunities in fiscal 2011, accounting for about $140 billion -- a nearly $40 billion decrease from fiscal 2010. Most of the major acquisitions are at Defense, because civilian agencies already awarded many high-value contracts last fiscal year, the group said.

Smaller firms also could see a bigger share of the pie as agencies attempt to introduce more competition and finally meet their small business contracting goals, Bergander said.

The Air Force, for example, is expected to award in early fiscal 2011 its second version of the Consolidated Acquisition of Professional Services contract for technical and acquisition management support at Wright-Patterson Air Force Base in Ohio. The $3 billion contract will be awarded exclusively to small businesses.

The Health and Human Services Department, meanwhile, is planning to award its $20 billion CIO-SP3 total small business governmentwide acquisition contract for health and research information technology.