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Sequestration's toll on industry is difficult to measure. Federal News Radio's special report, The Private Side of Sequestration, gauges the impact and ongoing effect of the Budget Control Act on the contractors that sell more than $500 billion worth of goods and services to agencies each year. We take an in-depth look at large, small and medium-sized companies, and investigate how government contracting is different today compared with previous fiscal years; which sectors are being hit the hardest; how business development is changing under sequestration; and how companies are planning for the future.
Contractors confronted with new type of waiting game due to sequestration
Monday - 7/29/2013, 5:36am EDT
Federal vendors are experiencing what many believe is the new normal when it comes to contracting.
Budget cuts and furloughs are gumming up the federal acquisition process.
Sequestration, furloughs and budget cuts are transforming the federal acquisition market into a waiting game. Leaving vendors to anticipate answers to questions such as: When will the award be made? When will the RFP be released? And why not sooner?
Mary Beth Romani, the chief strategy officer for Integrity Management Consulting, a small business providing acquisition and management consulting services, said the last nine months have provided companies with a feeling that is familiar to many mothers.
"When you are pregnant and you're at 36 weeks pregnant and you feel like the baby is never going to come, but you know intuitively the baby actually has to come. I feel like that is where we are right now," she said. "We have so much in award, and it feels like the government is never going to award most of these contracts. But when you step back and think analytically, you know they will be making these awards. I think it's just the fact it's an unprecedented time. There is so much pent up demand and the awards are obviously happening at a much different rate than in the past."
In one example of this delay and pent up demand, Romani said Integrity has been asked by a potential civilian agency customer to go back three times over the last year to sharpen their pencil to reduce their price. For many vendors, the new norm means the best and final offer is never the best or final one.
And it's not just contract awards. Integrity and others are waiting on agencies to release solicitations or requests for quotes on multiple award contracts.
Government in state of paralysis
In part 1 of Federal News Radio's special report, Private Side of Sequestration, vendors say they are seeing downward trends in the contracting market this year and have rising concerns in the out years about what this new normal means.
Integrity's experience is bared out by other federal vendors-both small and large.
A Federal News Radio online survey of almost 700 vendors found 57 percent of the respondents have been negatively impacted by sequestration by fewer contract opportunities. More than 55 percent of the respondents agreed with the statement: When it comes to making contract awards over the last six months, the government has been in a state of paralysis.
Govini found the number of awards is down by 32 percent and the amount of money awarded by agencies decreased by 31 percent from October 2012 to June 2013 when compared to the same period the year before.
"The contract data is pretty consistent with stories we've heard from government and contractors alike. There was approximately a 20 percent increase in quarter one spending versus the same period a year ago. We saw a surge of new activity as the sequester deadline drew near," said Geoff Celhar, vice president for research and analytics for Govini. "Some other trends follow what we saw during the stimulus. There was a higher volume of activity and that taxed the overall procurement environment. This was evident in our cycle time metric, which is measuring the elapsed time from advertisement of solicitation to award date. We are seeing the average cycle time up this year close to 300 percent so that's effectively pushing out some of that spend."
He added it's hard to say if the delays are only sequestration related, but scrutiny on procurements has increased.
Govini's data doesn't quite mesh with both the survey and the anecdotal evidence that says there are fewer contracts available. Celhar said the number of requests for proposals is up by 28 percent in fiscal 2013, as compared to fiscal 2012.
But 57 percent of the respondents to Federal News Radio's survey say they are seeing fewer contract opportunities, and 27 percent say the decrease is more than 30 percent.
RFPs in June dropped by half
Bob Lohfeld, president of Lohfeld Consulting, which helps vendors do business development and capture management, said the data his firm examined shows a huge decrease in full and open opportunities worth more than $50 million.
"As we went back and looked at the data over the last two-and-a-half years, we saw a drop in RFP release from 2011 to 2012...a modest drop, maybe around 7 percent," he said. "But in the first six months of 2013, deal flow was off by 24 percent, which is a huge reduction in the number of deals coming to market."
Lohfeld said this drop was most pronounced in June, which is usually the beginning of the busy season for federal contractors.
"June this year was half of the deal flow that we had seen in the last two years. In 2011, we saw 62 or 63 RFPs come through that were greater than $50 million. The number dropped in 2012. It dropped to about 56. Here in June 30 of this year, only 30 deals have played through in the month of June," he said. "So deal flow was down 50 percent in that month, which was just dramatic for the market. You can see it for the contractors. They are projecting lower revenues that they had projected earlier, and some are projecting declining revenues all because without the deal flow in place, without the RFPs in place, you can't generate that revenue later on."
An example of this delay Lohfeld described is the Defense Information Systems Agency's RFP for cloud and data center storage.
Diana Gowen, senior vice president and general manager for public sector at CenturyLink, said industry expected the $400 million opportunity late last year, but it has been delayed and delayed again. Now, DISA expects to release the solicitation in early fiscal 2014.
It's not just RFPs that are delayed, but awards too.
"The amount of time from submittal to award has been very, very long. In fact it's been longer than I've ever seen since we've been in business, awards delays of six months," said Chris Romani, president of Integrity. "We have things sitting in source selection for over a year and we just keep getting asked 'is your pricing still valid? It's going to take us another 90 days or another period of time to evaluate you proposal.' I'd say that is the number one thing we are feeling."
Romani added Integrity has so many outstanding bids that if they win all of them, they would increase the size of their staff by 50 percent.
Agencies turning to contract extensions
Govini's data shows an increase of time from first advertisement to award of 289 percent, after dropping significantly the previous two years.
And Federal News Radio's survey found almost 68 percent of respondents have seen fewer contract awards in 2013 with almost an even split of respondents saying the decrease has been between 10 percent and 20 percent (29.3 percent of respondents), 21 percent and 30 percent (18.6) and more than 30 percent (25).
Paul Fernandes, president of STG, a mid-tiered IT services company, said the delays are causing agencies to turn to bridge or extensions of current contracts.
This result is good for incumbents, but bad for those who want to win new work.
Fernandes said there are several factors that are delaying awards, including the fear that bid protests and contracting officers are having a more difficult time to get through the award cycle.
"We are constantly being asked to sharpen our pencil. In a final proposal revision, they always come back and ask you to sharpen your pencil, and we are seeing that not just once, but sometimes two or three times during the process," he said. "I think some of that is because the government wants to make sure they are getting the best deal they can. And other times, I think the government doesn't have the funding they wish they had for some of the requirements they are putting out there for industry to bid. It's getting harder and harder to sharpen our pencils and at some point, we are all going to have to realize scope needs to change as well. You can't just continue to drive prices down without figuring out better ways to do things."
Over the past several years, agencies have used more multiple award or GSA schedule contracts. But even those are seeing reductions now.
Govini examined task orders from October 2012 to June 2013 and found a 53 percent decrease as compared to the same period in 2011-2012.
Additionally, the number of RFQs under Schedule 70 for IT products and services is down by three percent and awards are down by 32 percent.
Interestingly, though, RFQs under Schedule 71 for furniture are up by 11 percent, but total dollars are down by 48 percent.
Govini's Celhar said that shows agencies are using smaller contracts.
More competition for small deals
Harold Youra, the president of Alliance Solutions, another consultant who helps product vendors with business development and strategic planning, said his clients are seeing two big trends around multiple award contracts.
"They are going to set-asides, and large companies are trying to find smaller companies to front-end smaller size deals," he said. "So where a large company may not have gotten involved in a deal that would be $20 million or $10 million [in the past], we are starting to see them show up more and more."
Integrity's Romani said he is seeing something similar to what Youra describes — competition from companies who traditionally they don't compete with.
"We are seeing less on our predominate schedule MOBIS, and more and more coming to small business destinations, and more coming to 8(a) or service disabled veteran- owned small businesses," he said. "As I talk to other businesses in the marketplace, we've never seen companies doing this much capture and tracking for 18 months and then the RFP comes out 8(a) or on a different vehicle. We are seeing agencies use the schedules program a lot, but in smaller pieces."
MORE FROM OUR SPECIAL REPORT, PRIVATE SIDE OF SEQUESTRATION:
Data Analytics: Sequestration's impact on contractors by-the-numbers
Audio Interview: Government market ground zero