Government contracts a shrinking pot of gold

WASHINGTON – For more than a decade, contract work for the government was big business for many private companies. But the funding behind these lucrative contracts has been on the decline, dropping by close to 11 percent from 2012 to 2013, according to The New York Times.

In fiscal year 2013, which ended on Sept. 30, the government spent $460 billion on contracts with businesses.

“I don’t think that there’s any reason to believe the the number is going to go up again,” says Dan Gordon, former administrator for the Office of Federal Procurement Policy under President Barack Obama in 2008. The office deals with government contracts. Gordon is now an associate dean for government procurement law studies at the George Washington University Law School.

“I think you are going to see $460 billion serve as a kind of ceiling; how much further it’s going to fall is a hard thing to predict,” Gordon says.

But he says he would be surprised if it fell more than 10 percent in fiscal year 2014.

The business of government contracts peaked in 2009, when Uncle Sam doled out $550 billion. Gordon says the drop of $90 billion in spending over the past five years shows “we are correcting what might have been an aberration over the last six years or so, with the spending being so astronomically high.”

The reason for the decrease?

“Partly it’s because of sequestration; it’s because of dealing with the deficit; a very small part is because of the government buying smart,” Gordon says. Winding down the war in Afghanistan and Iraq played a major part as well, he says.

“Almost all of the decline in the last year was at the Department of Defense; the civilian agencies didn’t have a decline that was significant,” he adds.

With less money to go around, it will be tough for businesses to enter the federal market, but Gordon says, “It is not gonna disappear; it’s not gonna shrink dramatically; that’s a very big market place for any company — large, medium- sized or small.”

While there is no data to show how much the decrease will impact small business, bigger companies, as you might expect, will weather the storm better.

“The large defense contractors that are working on major weapons systems are the ones most likely to escape unscathed,” Gordon says.

Stephen Fuller, director of the Center for Regional Analysis at George Mason University, also says forecasts indicate that we’re at the end of the cutbacks, but he says he thinks “for the next three years the federal contracting environment is gonna be pretty competitive.”

“The government is trying to be more efficient and spend our money more carefully but it has a consequence to the vendors,” Fuller says. “A small business has less flexibility in how they shift their business opportunities.”

Fuller says Congress may need to step in as spending levels go down “to help these companies, to make sure they get their fair share of the work … the distribution of the pie needs to be re-thought.”

As some business owners look at taking more of their goods and services into the private sector, Gordon encourages them to not abandon the federal contracts market.

“Our businesses, especially our small businesses, can often be nimble; they can bring innovation to the marketplace,” Gordon says.

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Editor’s note: This story incorrectly identified the amount the government spent on contracts with businesses during fiscal year 2013. We regret the error.


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