And that’s why many vendors have high hopes for an acquisition rebound in August and September.
“There is this giant rumor out there that many of the government customers have over corrected for sequestration, so there will be a lot of money they have to get on contracts in this last quarter of their fiscal year. We are seeing some pick up in activity, but we expect to see more of that,” said Paul Fernandes, the president of STG, a mid-tiered IT services company. “Task order contracts are becoming a very popular way for customers to move money quickly and award contracts very quickly.”
Getting out of the malaise
In part 2 of Federal News Radio’s special report, Private Side of Sequestration, we examine why vendors may be rethinking August vacations in order to handle what many expect to be one of the busiest end-of-the-federal fiscal year buying sprees in recent memory.
Typically, the fourth quarter of the federal fiscal year is a race for agencies to spend the rest of their money before it expires. But as many agencies and vendors have seen, 2013 is no typical year. With employee furloughs, budget cuts under sequestration and an overall malaise around spending, solicitations and awards have slowed considerably.
But that’s also why federal contractors are betting for some normalcy to return to agency spending as agencies realize how much money they have left after accounting for these cuts and decreases.
STG and other companies aren’t quite canceling staff vacations, but they are preparing for a heavy workload.
“Across the board, we are gearing up to write more proposals,” Fernandes said. “We just interviewed a couple of people and a couple of companies that help support the proposal writing effort. We brought them in and are looking to partner because we are expecting increased proposal activity over the next several months. We know you can only get so much out of your existing staff; whether you cancel their vacations or not, they still only can be productive for so much time.”
Chris Romani, the president of Integrity Management Consulting, a small business providing acquisition and management consulting services, said he isn’t canceling vacations either but does expect a busier end of the summer.
“We believe it’s going to be a feeding frenzy and a busy fourth quarter,” he said. “We looked at the funding profiles of our target agencies, which is part of our strategic plan, and we see that they have a lot of mission needs and a lot of unobligated funds. So, we believe it’s going to be a busy fourth quarter. It basically started for us a couple of months ago and it has just not let up.”
Romani said the number of RFPs and request for quotes under multiple award contracts means Integrity will have to do trade-off analyses on which solicitations to pursue.
“We are having to look at such things as fit to our strategic plan, percentage of win and things like that,” he said. “I guess it’s a good position to be in. We have to make trade-off analyses on how much you can push through the pipe.”
Romani said agencies are moving away from GSA schedules and other multiple award contracts toward small business set-aside contracts. This change makes RFPs more competitive.
A different type of buying
But the spending spree is not business as usual, as there is less overall money. Agencies are looking at whether they can move money to reduce furloughs.
Harold Youra, president of Alliance Solutions, a consultant who helps product vendors with business development and strategic planning, said his clients expect an uptick in spending this summer.
“Last year if you had $100 of spend, and they spent $90, they would still spend $100. This year we are seeing if it’s $100 of spend, it was down to $80 they need to buy products or services for. What we are seeing: yes, there will be some money leftover for the end of the year, but I don’t think it’s going to be like years past where they bought anything. I think there is a priority list the government has set up, and as they are going through the sweeps for the end of the year, I think they are really prioritizing where they are going to spend money. It’s not going to be ‘let’s buy something to buy something.'”
Bob Lohfeld, president of Lohfeld Consulting, which helps vendors do business development and capture management, said he’s seeing similar things from his clients. His company focuses on full and open contracts worth more than $50 million in the IT and professional services markets.
Lohfeld said he’s examined the number of pending RFPs and is optimistic for a big fourth quarter spending spree.
“It will flow at higher rates, maybe 50 or more RFPs per month as we clear through that backlog,” he said. “The deficit that was created in the first half of the year I think will show up as a bubble in the second half.”
One agency who requested anonymity because it didn’t get permission to speak to the media said it is holding weekly meetings to ensure program officers aren’t spending too much or too little money.
The CFO said, with employee furloughs taking place, the offices don’t want to end up with a surplus on Sept. 30 that could have supported employees not having to take a day without pay.
The CFO added the typical fourth quarter spending spree usually means agencies didn’t buy something it wanted to buy earlier on in the year. The CFO said if it wasn’t a top priority then, but now there is money available, they will spend it on those lesser priorities.
Pessimism of a big fourth quarter
There are some doubters to the big fourth quarter spending spree rumor.
A Federal News Radio online survey of almost 700 vendors found 51 percent of all respondents disagreed with the statement: “I expect the fourth quarter of the current federal fiscal year to be busier with contract bids and awards than previous years.” Only 31 percent agreed or somewhat agreed with that statement.
Part of the reason for the pessimism among respondents may be the perception that agencies issued fewer RFPs this year.
The survey found 65 percent of vendors say there has been a decrease in RFPs, and 27 percent say that decrease was more than 30 percent as compared to last year.
Several companies and consultants say contractors prepared for sequestration in 2013 and the impact is minimal. They are more concerned about 2014 and beyond.
Diana Gowen, senior vice president and general manager for public sector at CenturyLink, said orders from the Defense Department have slowed, but she’s seen no real difference on the civilian side this year.
Gowen said going into 2014 and beyond opens the doors to more questions.
“I think it’s too early to tell, but I’ll tell you this — going into 2014 and the government’s fiscal 2014, we will have more sequestration. We will have a continuing resolution. We are not going to see the end of no budgets and sequestration. I think the pain is going to be felt more and more in the future.”
Must be more resourceful
Gowen said the government will have fewer dollars to spend and fewer people to spend it, and vendors need to become more creative.
“I think those who can come up with solutions for government problems with contract vehicles that are already in existence is key,” she said. “It will not be a bonanza, but I believe it won’t be as terrible as it could be. We all have to be a lot bolder in presenting those to our government compatriots.”
STG’s Fernandes said his company also is becoming more creative internally as it prepares for 2014.
“We are doing a little different kind because our business developers in general are focused on the long-range things. We are having to bring them back in a little bit to get a little bit closer to the near term just to help us across the board, and the same with our capture mangers,” he said. “Typically, they are focused 12- to-18 months out, but now we are not getting that kind of lead time on some of these opportunities. Everybody’s heads down and focusing on the opportunities that are closest to the door.”
Trey Hodgkins, the senior vice president of the Global Public Sector for TechAmerica, said his member companies recognize the downward trend in the out years if sequestration continues.
“Because of the way many contracts are obligated for multiple years, those were not impacted initially by sequestration and it’s going to be, as those contracts begin to come up for renewal or exercise options to continue the activity or even recompletes, that’s when companies and the government are going to have to start making adjustments,” he said. “We are seeing some of that, but the expectations is the 2014 and 2015 timeframe is when we will really see the uptick in this downward trend line of what’s available to obligate and the reaction by the government.”
Hodgkins said the reaction by the government could be to recomplete in order to lower the price, ask the vendors to restructure the contract or a number of other options to save money.
Additionally, the fiscal uncertainty in Congress with another debt limit debate expected, as well as the 2014 budget battle, adds more uncertainty on both sides of the acquisition process.
And all of that leads to what many are calling the new normal of federal contracting.