DOD keeps contractors in budget suspense

Government contractors are used to waiting. Whether it is waiting for the outcome of a competitive contract or finding out how much their customer will be spending in the next year.

This time the IT government contracting world is waiting to see what potential changes will come to the Defense Department. While Defense Secretary Robert Gates has made several announcements about his department’s proposed budget over the last several months, details are still murky, putting the IT industry on edge.

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Some of Gates' changes have included reducing the number of service contractors the department uses by 10 percent over the next three years. He’s also called for the reduction of certain weapons programs. But the IT industry won’t truly know how they’re impacted until Feb. 14 when Gates delivers his budget to Congress along with the rest of the proposed federal budget.

“All contractors, not just IT, are going to be seeing a decline in spending,” said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, a government market intelligence firm. “Some will be seriously hurt and some will be jumping up and down.”

The industry has expressed concerns about the final outcome of the DOD budget ranging from where the CIO will sit to how the 10 percent reduction will play out.

“There’s not a lot of specifics as to how [DOD] should implement insourcing and the 10 percent reduction,” said Bob Smith, senior vice president and general manager of Dynamic Research Corp.’s defense group. “Sometimes you’re seeing different responses.”

TechAmerica, an industry association, said one of its biggest concerns was the future of the Defense CIO because of its role as a gatekeeper for IT programs and contracts. The organization wants the CIO to be closely linked to the Defense secretary to get the most buy-in from the top executive of the department, said Trey Hodgkins, senior vice president for national security and procurement policy for TechAmerica.

“What we’re unclear about is what tools and authority will the CIO have in the largest department of the federal government,” Hodgkins said.

Some in the industry are fretting about the departments and agencies within DOD that are getting cut and how that impacts contracting opportunities.

“When you start eliminating organizations and therefore the programs that go with them, that is when we get concerned,” said Mike Fox, vice president of corporate business development and chief strategy officer of Attain, a government services firm. “It seems to be a very fluid situation.”

While the IT industry waits for the budget proposal, they’re already taking measures to protect themselves. Bjorklund said he’s heard anecdotally that companies are trimming back their business development and sales organizations.

“If there are fewer programs buying services and products or if they’re buying a reduced amount of IT, you don’t need as many business development and sales people to chase things,” he said.

Fox says any strategic planning at Attain always has the looming defense budget in the background. The firm has quietly started shifting its priorities away from program management support work and focusing more on IT development, he said.

DRC has been shifting its focus from Defense Department work to national priority programs such as cybersecurity, homeland security and health care. The company will also go after contracts that involve refurbishment of military equipment, as well as IT consolidation efforts.

“A few years ago the vast majority of our business was in the DOD. Now we’re 60 percent in federal, state and local,” Smith said. “We’ve been able to flourish by pursuing those particular priorities.”