Trends in the Federal Contracting Marketplace - VisibleThread Users Conference 2014 Keynote
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This presentation was the keynote for the VisibleThread Users conference 2014. Presented by Kevin Plexico, VP at Deltek, a VisibleThread strategic partner. Kevin covered: - Recap of US Gov FY 2014 - Budget Outlook and Scenarios for FY 2015 - Opportunities and Issues to Watch
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Trends in the Federal Contracting Marketplace - VisibleThread Users Conference 2014 Keynote
- 1. Trends in the Federal Contracting Marketplace Kevin Plexico Vice President, Information Solutions Deltek, Inc. VisibleThread Users conference – Nov 2014
- 2. Agenda Recap of FY 2014 Budget Outlook and Scenarios for FY 2015 Opportunities and Issues to Watch 2 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 3. 2014 Recap 3 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 4. Contract Spending Trend 4 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved Civilian contract spending increased 2% over 2013 Defense spending remained flat (assuming Q4 spending matches 2013 Q4 spending) Source: FPDS, Deltek Note: FY 2014 is a Deltek estimate for Defense
- 5. FY 2014 Quarterly Spending 34% of contract spending occurred in Q4, tying the record set in FY 2013 Source: FPDS, Deltek * Q4 2014 Defense spending assumes it matches Q4 2013 level 5 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 6. Change in Civilian Contract Spending by Market Segment 6 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved Solid rebound in civilian contract spending in major services sectors Source: FPDS, Deltek
- 7. Change in Civilian Contract Spending by Department, 2014 vs. 2013 7 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved • Strong increases across a number of major departments • Some modest reductions for some Source: FPDS, Deltek
- 8. Outlook for FY 2015 8 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 9. Discretionary Budget Proposals for FY 2015 and Beyond Growth Scenarios -Budget Control Act ~2% -House Budget Resolution ~1% -President’s Request ~2% *Sequestration policy expires in FY 2021. FY2022-2024 are CBO estimates Source(s): OMB, House Budget Committee, CBO ©2014 Deltek, Inc. All Rights Reserved 9
- 10. Defense Budget - Past and Proposed 316 345 438 468 479 *Reflects FY 2013 enacted level excluding sequestration **OCO numbers are placeholders only Source: Under Secretary of Defense (Controller) 535 601 666 666 691 687 645 614* 578 581 575 565 574 581 589 ** ** ** ** 10 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 11. Next Step Scenarios for 2015 Appropriations Another CR Lame duck Congress passes another CR to give new Congress more time. 11 Omnibus Lame duck Congress passes full year omnibus Shutdown Congress can’t agree and allows a shutdown before Current Continuing Resolution Expires Dec 11 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 12. Forecast for FY 2015 Source: OMB, Deltek Note: 2014 is Deltek estimate for Defense. 2015 is Deltek Forecast 12 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 13. Contract Spending by Company Prime Contract Revenue 13 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 14. Mix of Federal IT Spending by Contract Vehicle Type Source: FPDS , Deltek 14 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved
- 15. Typical Acquisition Cycle Traditional RFP vs. Task Order RFI Draft RFP Industry Day RFP Bids Due 3-6 months 3-6 months 1-3 months SOW Bids Due 2-3 weeks 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved Key Decisions/Actions Bid/No-Bid Teaming Pricing/Proposal 15
- 16. Issues to Watch for 2015 16 11/24/2014 ©2014 Deltek, Inc. All Rights Reserved • Ebola • Mideast/ISIS • Ukraine • Budget/ Approps • Mid-terms • Immigration • GSA schedule changes • GWAC performance • Small Business rule changes • FAR changes Regulatory Acquisition Geopolitical Budget/ Policy
- 17. Thank You! Q&A 17
Notas do Editor
- - Defense and Civilian spending got off to a dismal start with the government shutdown - In the case of Civilian, just 18% of its annual dollars were spent in Q1 Q2 and Q3 showed strong recovery Q4 ended really strong with 34% of the dollars spent In the case of civilian, we’ve got pretty close to a final number of $53B spent compared to just $28B in Q1 For Defense, they hold their spending numbers until a full quarter after the end of the quarter, but we are projcting that they spent about the same amount they did in 2013, which is $102B
- In HC, we saw HHS increase it’s healthcare costs by 136% vs. prior year. In O&M, Energy really drives that number compared to other areas and we saw a strong increase in their spending In IT, we saw strong increases across a number of agencies, including USDA, Commerce, HHS, DHS, and VA In R&D, we saw some dips in Energy and HHS R&D spending
- Increase in Commerce –driven primarily by IT increases in PTO and NOAA State – driven by increases in construction work on State facilities and O&M/protection of State Dept facilities Interior spent more money in general, but in partiuclar in IT, Construction work and professional services Significant drop in Treasury related primarily to a $600m decrease in the amount of raw gold purchased by the US Mint. It’s IT spending actually increased pretty significantly last year USAID decrease related decrease in spending on global health services contracts it is in the process of recompeting. I’d expect a rebound there with the Ebola challenges
- What about the budget for 2015 and beyond? For 2015, the bipartisan budget agreement stipulated total discretionary spending for 2014 and 2015, so we have some degree of certainty on topline However the appropriators still have to hammer out the details of how those top line numbers get allocated Given the election year and the bipartisan budget agreement, a government shutdown appears extremely unlikely But appropriators are running out of time to finalize the appropriations. In fact, no of the bills have passed yet. As a result we do expect CRs culminating in some kind of omnibus that carries us through FY 2015 Looking beyond 2015, we still have the sequester in play, but the proposals from the House republicans and the President’s request don’t vary much The devil is in the details of the policies that are entailed in those budget discussions, but topline numbers should continue to show 1-2% improvement per year So it doesn’t necessarily get the market to the strong growth rates we had last decade, but it does return the market to a growth profile after nearly five years of decline
- The defense market will be more challenged than the civilian market Due to the high capital intensity and high sustainment costs of military investments, they need visibility on their long term budgets to understand what they can afford in the years to come to sustain Unfortunately, we’ve seen a pretty significant peace dividend being paid over the last several years as the OCO budget (the funding to support the war effort) has dropped faster than any other part of the military budget At the same time, the base budget projections have been cut substantially from what they were a few years ago. This is forcing military leadership to rethink investments they’ve made and planned to make and is also forcing them to look under rocks to find any additional savings This is why we’ve seen so much pressure on services spending, efforts to reduce HQ staff and professional services contracts and initiatives like the Better Buying initiatives The base budget for DOD is likely to remain flat for the next several years OCO funding was scheduled to decline, but due to the variety of crises around the world (instability in Iraq, Russian involvement in Urkaine and instability across the mideast), military leaders are already making comments about perhaps needing to rethink some of their assumptions The $79B ‘placeholder’ that was in the president’s budget for FY 2015 was replaced by a more firm request of $59 billion. Time will tell what happens here. The current view is pretty flat, but a major crisis unfortunately can change this pretty quickly
- The current continuing resolution funds government through Dec 11 CRs are generally not well regarded, but it feels oddly relieving that we have on this year compared to the Sequester or 2013 and the shutdown of 2014. Last time in 1994 when we had a Democratic president who’s party lost control of Congress to the other party, we ended up with CRs until May before full year appropriations were passed
- Expecting Defense contracting to remain flat, with no material change. While the OCO funding is poised to decline, I think we may see some reversal of that or supplemental to support the attacks on ISIS Civilian spending should creep up again, with increases in the usual areas, such as the VA, HHS and Treasury. With other agencies showing small increases
- The “Other” category consists of traditional contracts, such as sole source awards, single award RFPs for defined work (e.g., cost plus contracts, fixed price, etc.) The Other category has been in decline as agencies shift spending to task/delivery order types of vehicles. GSA schedule 70 has been on the rebound and the mix of work between GWACs and Agency specific IDIQs has stabilized.. Combined these three types consume 50% of IT spending
- Contract business development processes have grown up around federal contracting time frames. In the traditional RFP cycle, agencies conduct RFIs, hold industry days, release draft RFPs, etc. giving companies plenty of time for things like meeting with agency officials to influence the govt approach and gather intelligence, meet with prospective teaming partners and spend time vetting them, developing capture plans and assembling teams. In the task order response environment, often times companies have no advance notice of a task order, yet a company must make bid decisions, select teaming partners and develop pricing and a proposal within 2-3 weeks.