Last year marked the fourth straight annual decline in federal contracting, the longest trend of decline since 1986. The value of prime contracts (over $3,000) fell by over $56 billion dollars. Contracts to large companies took their biggest hit since recordkeeping began in 1984. The number of bid protests challenging contract awards was also down, even though the number of protests on high value contracts was up. The culprit was widely recognized as Sequestration.
Contractors are now being forced into additional rounds of layoffs and consolidation to trim their overheard costs. While commercial sales may be on the upswing, it likely won't be a big enough increase to offset the slump in government spending. Companies are becoming more creative in their attempts to obtain and/or keep work with the government. Congressional outreach efforts have increased in hopes of halting certain cuts to contracting.
So, if you think things are tight and getting tighter for both large and small government contractors, you are correct. However, some questions remain. Will these circumstances pass, as historical lessons would indicate? Or, will these current circumstances become the “new” normal? And, what effect, if any, will the passage of the FY2014 budget in early January 2014 have on government spending? Will it improves things, even a little bit? These questions, or more importantly the answers to these questions, will provide some much needed certainty within the federal procurement market.
This law update was co-authored by Taft partner Barbara Duncombe and Taft paralegal Christina Clemons.