If you’re a federal contractor and just now thinking about how to approach fiscal 2016, actually you are too late. It starts Thursday. But federal contractors are nothing if not resourceful. An interview I had Tuesday morning with Bloomberg Government’s Brian Friel offers up the five big trends shaping contracts in the coming year. Contractors have corresponding strategies for dealing with each of them.
1. Friel said budget caps will constrain spending, so discretionary spending will grow at less than 2 percent. My recommendation? It’s a time to examine costs, never fun, but necessary. Avoid proposing gilded lily types of solutions, but put yourself in the federal buyer’s point of view. Home contractors often price according to what ZIP code you live in. Assume your federal customers are all on the wrong side of the tracks.
2. Friel estimated recompetes will end up as heartbreakers for incumbents. Renewals will give federal agencies a chance to rethink their approaches to getting things done, applying a little value analysis to drive out costs. So contractors, in my view, should look at what they are doing under long-term contracts now that are up for renewal, and blow it up. Ask, what would I bid if I wanted to knock myself out of the competition? Like the business gurus like to say, make yourself obsolete before the other guy does.
3. In Friel’s view, the small business set-aside boom continues next week. If you’re L-3 or CSC, there’s not a lot you can do. But maybe you work for a behemoth and always wanted to do your own thing. Get a slot in one of the non-traditional innovator homes like Eastern Foundry and take the plunge. If you are an established small business, you can’t immediately do anything about your channel and GWAC (governmentwide acquisition contract) position, but you can look at your talent array and see what tweaks you can add in terms of specialized people. Maybe even that talented person at one of the biggies you sub to, who might like to escape the big-company bureaucracy she’s stuck in.
4. Bloomberg is expecting a year marked by high levels of mergers, acquisitions, divestitures and restructuring among federal contractors. My take: With margins low for the foreseeable future, acquirers might find bargains. Knowing your company might add scale or bring niche capabilities to someone looking to buy, maybe this is the year to sell.
5. Expect no major acquisition reforms, Friel said. Those kinds of reforms rarely happen in election years. Better Buying Power, consolidation as envisioned by GSA’s category management — those have a long way to go. Contractors should therefore concentrate on existing vehicles, and expect possible consolidations of like GWACs.
Short term, the government seems headed to a continuing resolution. That means no money for new programs. But you can work with your agency customers to identify streams of money under a CR. Services contractors can do well because their products can be sold month-by-month.