Not just how the government spends its money, but where?

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The fact that government spends more on services than it does on stuff isn’t exactly new. But even within that services portfolio, federal contracts are increasingly consolidated within a relative handful of market segments. According to a new analysis by Bloomberg Government, about a quarter of all federal contract spending goes toward just six categories. AI, Cloud Computing and operations and logistics lead the pack. Larry Allen is President of Allen Federal Business Partners. He joined the Federal Drive as he does often to discuss federal market trends

Interview transcript:

Jared Serbu: Larry, let’s start with that BGOV of analysis, I guess it’s not just our imaginations, there really is a lot of money in AI, cloud, digital services and a few other areas. They’re not just buzzwords. What jumped out at you most about this BGOV analysis?

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Larry Allen: Jared, probably the biggest thing that jumped out about this Bloomberg analysis was talking about customer experience, we’ve written a lot about it, you’ve seen some in trade press about emphasis on customer experience, and here it is backing it up with actual money going to it. This is part of one of the top six areas that Bloomberg Government said, can control as much as 25% of federal spending. So that really puts customer experience right up there on the same level with AI, cloud and some of the other more established priorities we know about. That provides contractors with another conversation they can have with their customers or would be customers, it also tells them look, we need to be expanding our portfolio and expressing our solutions in terms of these types of missions agencies want to meet.

Jared Serbu: And as far as getting that work, would you envision that CX stuff in particular getting folded into some of the usual contracts that things like cloud and AI are already on?

Larry Allen: I absolutely would expect to see Jared, you’ll find CX solutions from things like GSA’s Alliant program probably near the top of the list. Also from GSA schedules, some of the other standing IDIQ contracts that allow for services. So we have an NIH (National Institutes of Health) contract that has IT solutions on it, that would be a possible vehicle. There are also ones in some of the military branches. I don’t know that we need brand new CX focused government acquisition vehicles, but I can guarantee you the conversation about that is already taking place inside certain federal agencies. But for right now, Jared, what it really means is, if you’re a contractor that would like to provide CX solutions, it’s just one more reason why having one of the established well known indefinite delivery, indefinite quantity contracts, is an important part of your government business.

Jared Serbu: And besides this work going largely to established contracts, as you point out in your newsletter, Bloomberg is also explicitly predicting that a lot of this work is going to go toward more established contractors, is that just an artifact of the continued trend toward contract consolidation?

Larry Allen: Jared, I think it’s two things. One is contract consolidation. For your contractors, more established contractors getting the work, you know, the Bloomberg article talked about getting rid of a number of contractors or leaving the government market. The other thing that I think we’re seeing here is trust. We know that the government writ large is kind of a risk averse customer. Customer experience spending is a new area for many agencies. It’s an area where they’re going to want to have an established trusted partner work with them on something new. Very few agencies, in my experience, are going to want to have a new, a new priority with a set of new providers, that’s just too much new for them, potentially too much risk. That gives a leg up I think, to established companies.

Jared Serbu: And along the same lines, you’re also pointing out in the newsletter this week, GAO recommendations, in part. as part of their annual report that OMB press agencies more toward category management and best in class contracts. And as you highlight there’s a tension there, between existing OMB guidance that says you got to balance these best in class contracts with the need to bring on new market entrants. How does that tension get resolved to the extent there is a tension?

Larry Allen: Well, I do think there is tension, Jared, and the tension relies ironically, in this case, primarily inside the Office of Management Budget. You have one part of OMB that has historically promoted category management, a key component of which is best in class contracting. And now you have another part of the Office of Management Budget saying, wait, we want to make sure that we are diversifying our supplier base, not necessarily looking only at best in class contracts, but looking at other suppliers that are newer to the market, particularly socioeconomically disadvantaged businesses. That to me, Jared, though, doesn’t have to be a dichotomy. I think that there are ways to achieve both. That’s looking for ways to ensure that these socioeconomic class contractors, particularly newer market entries have a path to participate on some of the best in class vehicles that we have out there, the ones that are coming up for re-compete, maybe some have an on ramp. So looking for ways to team up those companies with more established contractors that have the specific experience, looking for ways to encourage those contractors to team together with themselves and with each other, to pull their experience as a way to get on some of these best in class contracts. I think we can expect to see OMB work with agencies to use these best in class contracts as a vehicle for increased small and small disadvantaged business participation. So they can meet the GAO recommendation, and also the administration priority of making more use of those companies.

Jared Serbu: And I guess another avenue would be outside of not just establish multiple award contracts, but outside the traditional acquisition system using things like OTAs and commercial solutions openings, which are kind of seems like trying to, creeping their way more into the civilian side of government after really taking off on the defense side, how much how big a role could alternative approaches like that play in bringing some of these new entrants on board and avoiding the whole contract consolidation conundrum?

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Larry Allen: Jared, I think that these nontraditional acquisition methods are going to play a much larger role. And it’s not just OTAs other transaction authority, that we’ve heard a lot about, and many people may already be looking at OTAs as a way to approach their government business. That makes a lot of sense. It’s not far based so on the face of it, there are fewer rules and regulations that these new market entries have to deal with. But we’ve been hearing about commercial solutions openings, for oh, at least a half a dozen years now, which is kind of the commercial, I wouldn’t say alternative, maybe stablemate is a good word, to other transaction authority. But up until now, we really haven’t seen CSOs getting a lot of press, there certainly have been one off commercial solutions, opening projects at GSA or DHS, two agencies that make a lot of use of this type of vehicle. But now GSA itself was in headlines last week saying we’re going to use CSO authority to bring DoD prototypes on to our contracts as a way to speed up research and development and get promising technologies into current production. That’s a new way to use an established, but not often heard of program, the commercial solutions opening. And again, it’s one that sets itself up very nicely for new market entrants.

Jared Serbu: All right, Larry Allen, president of Allen Federal Business Partners, thanks as always, Larry.

Larry Allen: Jared, thank you very much, and I wish your listeners happy selling.

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