Federal spending on services contracts continued a slow downturn last year, according to a new analysis from the Center for Strategic and International Studies. All told, contract spending on services fell 7 percent — from $332 billion to $308 billion — between 2011 and 2012.
And the downward trend is likely to continue, given budget constraints that are set to intensify in the coming years.
In fact, CSIS projects that by 2015, spending on services contracts will still remain below 2009 levels. And if Congress does nothing to avert automatic spending restrictions imposed by the Budget Control Act, that number could slide even further.
“It’s hard to predict,” said David Berteau, senior vice president at the Center for Strategic and International Studies and director of the group’s International Security Program. “The projections we’ve made … really go down two different paths. One is really consistent with the President’s budget proposal and the House and Senate budget resolutions — all of which propose spending more money than is consistent with the Budget Control Act.”
The second projection conforms to the spending caps currently laid out in the law.
“In even the best of those cases — if the government got everything that it hopes for and the budget resolutions were adhered to and the Budget Control Act was done away with — even under those circumstances, you’re still back to a level that you had in 2005, 2006, 2007,” Berteau said in an interview on the Federal Drive with Tom Temin and Emily Kopp. (Federal News Radio’s executive editor, Jason Miller, and DoD reporter, Jared Serbu, co-hosted).
And if Congress does nothing to alter the BCA’s budget caps, that could return service contract spending to levels not seen since the late 1990s, Berteau said.
Top 10 Federal Services Contractors 2012 / 2002
University of California
Booz Allen Hamilton
Computer Sciences Corp.
“The dollars really are going down, and that makes every dollar spent all the more important,” he said.
Beyond the broader budget constraints, an Obama administration directive to reduce contract spending has also played a role in the decline.
Late last year, the Office of Management and Budget announced agencies spent had spent $20 billion less in total contracting dollars in 2012 compared to 2011. And much of that decline was driven by a reduction in spending on contracts for management-support services.
Overall, agencies reduced spending on such contracts from $40 billion to $33 billion between 2010 and 2012 — meeting an administration mandate to reduce spending by at least 15 percent.
Berteau said the administration’s guidance has clearly had an impact.
“It is having a big effect,” he said. “I mean, you look at overall federal spending, it’s down about 7 percent from the peak in 2010. If you look at total federal contract spending, it’s down about 12 percent since the peak … But if you look at services contracting, it’s down 16 percent — more than twice the rate of overall federal spending decline.”
Among the the areas feeling the biggest impact, according to the CSIS data, is spending on professional, administrative and management support (PAMS) contracts, which peaked at $110 billion in 2010 and declined by more than $13 billion by 2012.
The spending downturn isn’t being felt evenly across the services sector.
“The small businesses and the extremely large businesses — that is the big six — are the two categories that are not seeing as big an impact,” Berteau said.
Service contract spending is down overall by 7 percent. For small businesses, on the other hand, the decline is 5 percent and just 3 percent for the six largest contractors.
“So, the ones that are being squeezed are really the mid-sized businesses and, most importantly, the large businesses,” Berteau said. “They lost about 9 percent over the course of the year. So, it’s not proportionally distributed.”
That’s the result of individual competition decisions and contract award decisions, Berteau emphasized — not policy. “There’s no game plan that says let’s squeeze one category more than the other,” he added.
CSIS has compiled its report on service contract spending every year since 2005. Over the years, Berteau said, federal contracting data — which is maintained on the Federal Procurement Data System — has improved greatly.
“There’s a lot more senior-level attention to the quality of the data and what the data say,” Berteau said. For example, the chief procurement officer of the Homeland Security Department, Nick Nayak, reviews data added to the system almost daily, he added.
“It’s a recognition of the importance of contractors and the role contractors play — and also some of the potential vulnerabilities from contracting,” Berteau said.
Tom Temin is the host of The Federal Drive, which airs from 6-9 a.m. on 1500 AM in the Washington, DC region and online everywhere. Tom has 30 years experience in journalism, mostly in technology markets. Before coming to Federal News Radio, he was a long-serving editor-in-chief of Government Computer News and Washington Technology magazines.