Federal contracting glides on with contractors untroubled by political breezes

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Federal contractors have high confidence for the future of their businesses, especially if they’re selling cybersecurity services and anything with the word infrastructure in it. That’s according to a new index, which purports to be the first of its kind. For how they developed it and what it says, the Federal Drive with Tom Temin turned to Alan Chvotkin, a partner at the law firm Nichols Liu and a co-author of the study.

Interview transcript:

Tom Temin: Alan, good to have you back.

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Alan Chvotkin: It’s a pleasure to be with you, Tom.

Tom Temin: And I think this is your first outing with us since your prior post and so good to know you’re still supporting the market. Tell us about the study. What were you trying to get at first of all?

Alan Chvotkin: Well, I joined with a private sector company proposal consultants called OCI. I’ve known them for a long time. I’ve known the president for over 15 years. And in fact, they were a client of mine in my prior work a century ago. So we undertook a study of those who are involved in proposal activity, capture work. A segment of it, that’s really at the front end of the contracting activities. We surveyed over 5,600 vice presidents and directors of business development capture proposals. And as you’ve noted, this is the first time that anybody’s undertaken a study like this, of this segment of the government contractor community.

Tom Temin: All right, so contractors, at least two thirds of them are generally optimistic. And the government has spent itself into $28 trillion of debt, a lot of that’s contracting dollars. So it’s a market that seems to be recession proof. Is that the reason?

Alan Chvotkin: I think it’s multiple factors. First of all, spending on government contracts was actually a little lower last year in the last federal fiscal year. And we’re still a while to go in this fiscal year to see what the numbers look like. But there’s still lots of money out there. And as you noted, a lot of spending on information technology, including cyber, and as the respondents look down the horizon and see what’s coming in infrastructure and data, and in the Department of Defense, I think there is reason for optimism about the amount of money and the opportunities that contractors will have in the coming fiscal years.

Tom Temin: And people wonder if there was any real impact other than the gross dollar levels on federal contracting. And of course, there were some big spending in very specific areas. But maybe some of the bread and butter standard areas, as you say, went down a little bit. Anything, lessons learned, anything that matters going forward with respect to the pandemic?

Alan Chvotkin: I think it was clear that over a quarter of the respondents said that the pandemic had an impact on their businesses, a direct impact. And then another 17% said it was a noticeable impact. While only 11% said there was no real impact from the COVID on their business. And so I think there’s a number of issues, where the workforce was, the federal workforce, many of them teleworking, and so that slowed down proposal activity a little bit. And we had to transition over to the Biden administration. And that had some impact last year. We didn’t sample to get that many actualities from people about the rationale. And so we’ll make some things up. But it’s pretty clear that there was a noticeable impact from the COVID on people’s perception of the business. The other thing related to that was the challenge of finding new personnel. And I think that may be directly related to the COVID. Lots of people were still trying to work from offices or on government site. And a lot of the workforce didn’t want to be on site.

Tom Temin: And in some ways, it takes a special person to be able to be successful in federal contracting, because it is not a business generally, where you get instant gratification. And sometimes it’s months, years in developing proposals. And there’s often a tail process with protests and so forth. And so the payoff can be way down the line from when you conceive of a solution.

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Alan Chvotkin: Well, as you’ve reported on for such a long period of time, there’s a very long sales cycle in the federal marketplace. Very few emergency procurements. They certainly exist in disaster recovery areas, and others, but not too often the core of government contracting world is replete with detailed regulations, very specific processes for proposal submissions, and then a long sales cycle of evaluation and award.

Tom Temin: We’re speaking with Alan Chvotkin, a partner at the law firm Nichols Liu and co-author of the OSI study on contractor confidence. And do you have any sense of the change in administration and the change in party because often the policies of the Office of Federal Procurement Policy and also of the Office of Federal Contractor Compliance Programs at the Labor Department, plus to say nothing of executive orders, changes the water from salt to fresh to salt to fresh back and forth continually as administration’s change?

Alan Chvotkin: Well, this survey was conducted towards the end of last year and into the early weeks of this new calendar year. So we did ask the question about the positive impact of the Biden administration on business prospects. Only 9% said that the Biden administration had a positive impact. Some of those were because those executive orders and regulations and policy changes were all in transition last year. And so it was hard to see some. But even among the small businesses, which have been specifically targeted by the Biden administration for attention and growth, their responses were pretty mild. A quarter of the respondents said it didn’t have a positive effect at all. It wasn’t negative, it just didn’t have that positive effect. Yet, they remain confident about the marketplace generally.

Tom Temin: And maybe tell us a little bit more about the sample. You said 5,600 business development and marketing people? Did it have an information technology bias in your group? Or did you also have people that do the myriad of other types of goods and services that government buys?

Alan Chvotkin: Yeah, we didn’t try to sample specifically around IT. And we didn’t ask the demographic questions around IT, but split in the terms of respondents about a third of large business, a third medium, and a third small, almost 65% were from the D.C. area, but a fair representation from other major federal enclave areas like Texas and Florida, California, where you would expect to have companies with a lot of activity, because there’s a lot of federal presence, and a lot of contracting coming in those states.

Tom Temin: And the big topic for a lot of agencies, regardless of whether it was the Trump administration, and now the Biden administration, is this need for innovative solutions, and therefore innovative contractors. And yet, there’s always that wall that people totally new to the government mostly give up trying to figure out how to get in there unless they can understand the idea of other transaction authority money, but even then, that’s kind of a specialty. So what’s your sense of the ability of the market to expand not just in dollars, but in that DIB? Say, the defense industrial base and in the general number of companies that do business with the government?

Alan Chvotkin: Well, it wasn’t part of the survey, specifically. But I do know, from my interaction with the OCI proposal folks, that they’re doing a lot of work in those other transactions, world and other innovative activities. So we’re seeing a growing need by contractors for that kind of outside expertise. And we’re seeing growth in those non-traditional contract types. It’s still not as significant overall of all of the government contracting activity, but it’s certainly a growing trend. And agencies are asking for a different set of innovative procedures and innovative solutions, even to their traditional issues.

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Tom Temin: All right, and let’s use the famous phrase of lessons learned. What did you survey, what did the findings say that contractors need to do to remain effective, that is to say, to be successful at their own businesses?

Alan Chvotkin: Well, I think first is the importance of the federal budget, not really part of the survey. But if the funds aren’t flowing, there’s no proposal activity, there’s no contract. So getting the funding right for agencies in a timely manner, critical. Secondly, the workforce, if you don’t have the workforce to go and do the work, it doesn’t matter how much is available. And so we still see workforce issues and contractors coming up as an issue. And the challenge of finding not only personnel, but qualified personnel in these emerging areas like cybersecurity or big data. If that’s the growth area, you’ve got to be able to attract and retain a workforce around that. And then finally, I think is the impact of the COVID activities and the related issues, the longer that tail is to get out of that set of issues and back to whatever normal is going to be in the future, the more valuable it will be because of the impact that that had on so many of the contractors.

Tom Temin: Alan Chvotkin is a partner at the law firm Nichols Liu and co-author of the Contractor Confidence Index published by OCI. Thanks so much for joining me.

Alan Chvotkin: Always a pleasure, Tom.

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