Understanding the government contracting landscape and current trends and legislation can be very helpful in planning and adjusting your focus to take advantage of emerging services and focus in the industry.
The Modernizing Government Technology Act (MGT) of 2017 Will Influence IT Procurement
Part of the 2018 National Defense Authorization Act has the goal of improving federal technology by providing technical expertise and financial resources to agencies. The MGT will allow agencies to invest in modern technology solutions to save taxpayer dollars, secure sensitive data and systems, and improve service delivery to the public. There are two primary provisions to address these needs:
- The authorization of all CFO Act agencies to establish IT Working Capital Funds (WCF)
- Establishing a centralized Technology Modernization Fund (TMF) and Technology Modernization Board (TMB)
The priorities for spending will be on IT services and products that reduce risks, improve efficiency, cut costs and remove duplicate programs.
Contractors offering the following services should see more opportunity, as they will likely be emphasized:
- Shared Services
- Data Center Consolidation
- Cloud Migration
- Agile Development
- Commercial off-the-shelf software
Contractors that can that supplement innovative yet underfunded programs or that upgrade legacy systems are ideal candidates to earn modernization monies.
Additional flexibility is gained by offering additional funds for long-term investments and allowing three years to put the money on contracts for both the individual agencies and the General Services Administration (GSA).
This allows agencies to save money across years for the services and products that will work best for the agency rather than being forced to spend the dollars within the fiscal year. The three-year dollars could result in a spending surge for IT after three years rather than an annual Q4 spending spree.
Audit Services Will Be in Demand
While the government always requires consolidated financial statements and a prepared set of books, the Department of Defense (DOD) hasn’t been able to do so.
This isn’t a result of the DOD not being able to get a clean audit, but according to the Government Accountability Office, it’s that their statements can’t be audited because of their financial management problems.
The DOD began the arduous task of preparing an agency-wide financial audit for the first time ever in the fall of 2017. This has created a high demand for companies with auditing expertise. The potential for the demand should continue to follow up work in the years to come.
In 2018 1,200 audits conducted over 900 site visits to over 600 locations examining hundreds of thousands of items. The results were several organizations receiving clean audits, while other organizations new to the audit process received disclaimers that multiple issues needed to be fixed. The issues centered on inventory accuracy, property, and compliance pertaining to cybersecurity.
The most lucrative work remains in the Pentagon, but civilian agencies will play a role.
Department of Defense’s Use of “Other Transaction Authority” will Continue to Increase
“Other Transaction Authority” (OTA) refers to the streamlined procedures that agencies utilize to procure innovative prototypes or research, without the typical constraints of a standard contract. It allows for flexibility, speed, and accessibility in executing prototype and research programs. In 2017, the DOD spent a record high of $412 million on OTA contracting. That surge is significant compared to the $3.5 million spent in 2013.
OTAs are often used by the military to work with a variety of consortia set up to encourage nontraditional defense contracts to develop innovative technology. The threshold for use of OTA is raised from $250 million to $500 million through several provisions in The National Defense Authorization Act for fiscal 2018. With a lack of the many safeguards establishing in traditional contracts, there is some risk with utilizing OTA, but short of any major setbacks, we should expect to see an increase in spending here in the coming years.
Mid-Tier Companies Will Continue Make Progress and Grow in Number
For mid-tier companies with annual revenue between $25 million and $500 million, expect to see their influence and number expand as they continue to make progress with policy issues on Capitol Hill.
If they can overcome issues of structural procurement barriers like teaming restrictions and size standard calculations it can lead to continued gains on key contract vehicles and growth markets. Fiscal 2017 saw the highest total spending, at $138 billion, since 2012. This is a reverse of several years of decline. The largest portion of obligations to mid-tier companies was through technological and professional services multiple-award contracts. Vehicles like General Services Administration’s IT Schedule 70 and NASA’s Solutions for Enterprise-Wide Procurement V are most likely to continue to propel mid-tier performance.
One major challenge mid-tiers will face compared to official small sized businesses, is their struggle against competing with large, deep-pocketed competitors, will small businesses status and preferences enable them to grow very large on important contracts in key government markets.
Best-In-Class Contracts Will Transform Category Management
Agencies face increased pressure optimize efficiencies out of tight budgets, and BIC will continue to gain momentum.
Best-in-class means that something has been designated by the Office of Management and Budget (OMB) as a preferred governmentwide solution that:
- Supports a governmentwide move to solutions that are market-proven and mature;
- Aids in the optimization of spending, within the government category management framework;
- Allows acquisition experts to take advantage of governmentwide, pre-vetted solutions;
- Increases the available transactional data available for analysis of buying behavior at an agency and governmentwide level.
In November of 2017, the first comprehensive list of “Best-In-Class” (BIC) contracts was introduced by the federal government, chosen by access to market-proven solutions and competitive pricing. This allows agencies to take advantage of standardized requirements for common services and products, volume discounts, benchmark labor rates, and gain a stronger sense of governmentwide demand.
Information Technology procurement is one place where BIC contracting could reshape category management. The GSA estimates that standardizing acquisitions through BICs could save agencies 10 to 20 percent compared to one-off IT contracts.
Contractors should expect continued growth in the market share of existing BIC contracts after the federal government expanded the role of BICs in category management.