Contracting Check-In – Where Does The Market Stand In The Wake Of The Shutdown

The federal IT landscape is shifting. Now more than ever, contractors and the federal government alike are looking to sell and buy government services, not hardware. Think cloud computing over data centers. But the shift is causing some problems, because the federal procurement system simply isn’t set up to handle those types of agile service contracts. Also making the shift difficult are tight budgets, especially in the wake of the shutdown, so taking a risk on a service contract doesn’t always seem wise.

In part one of our interview with Stan Soloway of the Professional Services Council (PSC), we talked about how is making the shift to focus more on services to help both the contractors and the government better understand this new medium.

In part two, Soloway told Chris Dorobek on the DorobekINSIDER program his view of where the federal contracting market stands now.

Soloway’s view on where the market stands:

1. Volume Vs. Value: “If you look at the market that our members operate in, this technology and professional services market, the issue there is less about available dollars than the quality of the market. If you look at the data, the market has held its own. It is growing, only slightly, but growing. But relative to the federal budget it has done ok. What this market provides is absolutely essential for the government. The government is not competing well organically do the same type of work. So, from a volume perspective it is not great, but it is not terrible. But, when you see margins start to get compressed as much as they have been compressed and overheads start to get compressed, it creates a different kind of pressure. So you can get volume, but not value. That is a great concern amongst the companies and it is causing the companies internally to look for a solution. You might remember, not too many months ago some cynical comments about Lockheed Martin because they had been amongst the most vocal about the dangers of sequestration. They had a record profit last year. What people missed is that Lockheed Martin saw this coming and they spent three years getting lean. It was really a tough time at Lockheed, they knew this was coming. They know that creates morale issues and so forth.”

2. No Direction: “There is still a schizophrenia about where the government is going. Companies and federal employees have been trying to do innovative things, they don’t work and the next thing you know they are in the public pillory. The general environment is so angry and punitive, it can’t help but reflect itself or rollover, particularly on the government employees, but also onto the contractors that work for them.”

3. Hiring Woes: “Let’s just imagine for a moment that you are coming out of CalTech in 2009, and I was a government contractor. I needed a really sharp young talent who could do sophisticated app development, so I went and hired you at a pretty premium price because I had to compete with Wall Street and everyone else who wanted you. I got you a security clearance which increases your premium even more and two or three years into the performance of the contract – the contracting officer says to me, ‘You have to lower his rates by 30% or you aren’t going to be able to keep the contract.’ Part of that is we have contracting officers that are doing that because they are under such budget pressures, but the other things is that premium skill that you brought to the table three years ago is no longer premium. Everybody coming out of computer science programs can write apps today. You are seeing all kinds of fluctuations in the human capital side of the marketplace.”

Part one of our interview with Soloway: A New Era For Gov Associations – Why They Need to Make the Change