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»
Now What?
Federal Market Outlook After
March Budget Madness BRIAN FRIEL
PRIVIA ACHIEVE 2013
FEBRUARY 20, 2013
Federal Business Intelligence Analyst
KEVIN BRANCATO
Senior Defense Analyst
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1
SEQUESTRATION OVERVIEW
Background
Bloomberg Government estimates $85 billion in annualized
March 1 cuts split between defense and nondefense
» Defense = $42.7 billion/7.3 percent, mostly discretionary
» Nondefense discretionary = $27.4 billion/5.3 percent
» Nondefense mandatory = $15.4 billion, percentage varies
» Additional $12 billion defense-only cut occurs March 27.
Impact on specific programs is difficult to determine
» Law says every “program, project and activity” must be cut
equally; neither law nor Congress clearly defines “PPA”
» OMB may allow some discretion in how cuts are applied
Contractors should prepare for cuts
» Cuts to future contracting opportunities; modifications or
cancellations of existing contracts
Budget Control Act of 2011, as amended, mandates
sequestration on March 1, 2013, lowers spending caps for
fiscal 2014-2021 to achieve $1.2 trillion in overall savings.
Continuing resolution funding government operations expires
March 27, 2013, same day as defense-only second
sequestration set to hit.
Impact
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2 SEQUESTRATION ESTIMATES
Contractors to Take $30.8 Billion Sequester Cut: BGOV Insight
» http://www.bgov.com/news_item/Z-oN793yKThmWks5X_RaeA
ADDITIONAL BGOV
SEQUESTERATION
RESEARCH
» Nine Federal Programs
Face Budget Chopping
Block
http://www.bgov.com/ne
ws_item/lQfE9nnVck-
pHRNyfd_M-A
» Defense Contracts
Plunged 67% in
January as U.S. Cuts
Loomed
http://www.bgov.com/ne
ws_item/qjVGrZtCF1nb
pKqIWKjrTw
Department
Contract
Sequester
Agency
Sequester
Percentage
Agency
Sequester
(Incl. Mandatory)
Agency
Discretionary
Sequester
Defense $23,148 7.3% $40,863 $40,827
Energy $1,657 6.5% $1,791 $1,775
HHS $1,036 5.3% $15,838 $4,316
DHS $853 5.4% $3,325 $3,059
NASA $823 5.3% $949 $949
DOT $508 5.3% $2,129 $1,748
State $481 5.3% $1,687 $1,685
Justice $355 5.6% $1,708 $1,557
Treasury $335 5.3% $1,243 $759
Agriculture $289 5.3% $2,018 $1,281
Int’l assistance
programs
$279 5.3% $1,298 $1,291
Commerce $250 5.3% $616 $603
Interior $171 5.3% $923 $684
Labor $123 5.3% $1,510 $671
HUD $133 5.3% $3,206 $3,206
EPA $89 5.3% $498 $496
Education $73 5.3% $2,613 $2,417
SSA $46 5.3% $304 $304
NSF $24 5.3% $382 $377
Judicial branch $23 5.3% $362 $348
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3 HOW DOD MIGHT MANAGE O&M SEQUESTER
DOD wants to treat O&M
differently from acquisition
accounts
» Defining PPA as entire
account
» Would allow for more
discretion to trim spending by
different percentages within
accounts
» OMB or Congress could
object to DOD’s
interpretation and selective
cutting
Training and Education
Land Forces
Recruiting, Advertising and
Examining
O&M Account
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4 SEQUESTRATION OUTLOOK
Scenario 1: March short-term deal
» Negotiators use sequestration effects to drive deal to replace or put off this
year’s sequestration cuts
» Sets funding levels for rest of this fiscal year. Leaves further battles for fiscal
2014 appropriations process.
Scenario 2: No short-term deal, sequester proceeds per current law, no sign of
long-term deal
Scenario 3: Long-term deal begins to take shape in March
» Negotiators buy two-month delay of sequester with $24 billion in replacement
or delayed cuts.
» Budget process used to work out details of trillion-dollar deal.
Most likely outcome:
» Sequester begins
» Need to deal with continuing resolution forces action by March 27.
» Snowballing effects of sequester require short-term fixes
» Budget battles continue through at least fiscal 2014 appropriations cycle.
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5 MARKET OUTLOOK
Sequestration could
cut $30 billion from
contracts in fiscal
2013.
Market could settle
over next few years at
$450 billion to $500
billion.
War drawdown
biggest factor.
Across-the-board dips
as agencies issue
fewer, smaller, shorter
contracts.
Policy drives
procurement.
$0
$100
$200
$300
$400
$500
$600
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003*
2004
2005
2006
2007
2008
2009
2010
2011
2012
Billio
ns
Federal contract spending (2011 constant dollars)
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6 MARKET OUTLOOK
Fewer contracts as agencies
rethink acquisition strategies
and consolidate work.
$0
$600
$1,200
$1,800
2011 2012
T4 Other Contracts
IT Services Spending at the VA
Dollars in millions by fiscal year
30% on T4
Shorter terms as
procurement chiefs push
more frequent competition. 2.2
3.4
4.2 4.1 3.8 3.8
4.2 3.9
3.2
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2004 2005 2006 2007 2008 2009 2010 2011 2012
Average Length of SeaPort-e Task Orders (in years)
• Average length fell a
full year from fiscal
2010 to fiscal 2012
• Fiscal 2012 average is
lowest since fiscal 2004
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7 MARKET OUTLOOK
More scrutiny equals more
delays.
More bid protests equal
more delays.
“The tripwire policy reflects a significant
environmental change in acquisition policy
from ‘How quick can I get this done’ to ‘Do I
know how every penny is being spent.’” –
Navy notice to contractors - May 14 2012
guidance.
- Reduction of duplicative contracts
- Automatic review of labor rates over $250K a
year.
- Tracking of proposed versus actual rates.
- Crackdown on subcontracting pass through
fees.
- Increased re-solicitations when only one bid
received.
2,353 2,475
0
500
1,000
1,500
2,000
2,500
2011 2012
Up 5.2%
GAO Bid Protests Filed, by Fiscal Year
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8 MARKET OUTLOOK
Uncertainty drives more work to IDIQs.
$15
$25
$35
$46
$54
$69
$79
$88 $92
$84
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Bill
ions
MAC Obligations By Fiscal Year
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1.4
1.6
1.6
1.8
2.0
2.3
2.3
2.4
3.8
5.0
$0 $1 $2 $3 $4 $5 $6
Encore II
Alliant
EAGLE
ITES-2S
SEWP IV
CRAF
USC-6
S3
LOGCAP IV
SeaPort Enhanced
Billions
FY2012 Obligations
Note: Non-schedule MACs. FY2012 data is preliminary. LOGCAP IV is the Army’s Logistics Civil Augmentation
Program IV; S3 is the Army’s Strategic Services Sourcing; USC-6 is U.S. Transportation Command’s Universal
Services Contract – 6; CRAF is U.S. Transportation Command’s Civil Reserve Air Fleet; SEWP IV is NASA’s Solutions
for Enterprise-Wide Procurement IV; ITES-2S is the Army’s Information Technology Enterprise Solutions – 2 Services;
EAGLE is Homeland Security’s Enterprise Acquisition Gateway for Leading-Edge Solutions. The Navy Runs SeaPort
Enhanced; the General Services Administration runs Alliant; the Defense Information Systems Agency runs Encore II.
Source: Bloomberg Government proprietary federal procurement database.
MARKET OUTLOOK
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4 POLICY DRIVES PROCUREMENT: CYBER
President Obama’s
executive order on
cybersecurity will drive
opportunities at
Homeland Security this
year.
32
218 229
328
$0
$50
$100
$150
$200
$250
$300
$350
Federal Network Security Information security on federal networks
2012 2013
Funding for DHS Cybersecurity accounts, by fiscal year (in millions)
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11 POLICY DRIVES PROCUREMENT: HEALTH
Centers for Medicare and
Medicaid Services and
Internal Revenue Service
lead $1.3 billion in
Affordable Care Act
contract awards. IRS is
ramping up its work now.
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Q&A
12
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