PSC Conference Recap: Continued Uncertainty, Strong Headwinds
Some key takeaways from the recent 40th PSC Annual Conference:
- Where was that end of the year contracting and task order flush? It sounds as though customers either didn’t have money or those who have money are holding it close. The end of government fiscal year spending spree of years past didn’t seem to materialize. Those anticipating this end of year spending to “catch up” their year-to-date performance to calendar year budgets may need to re-evaluate. While the financial hit is disappointing, more concerning was the sense of frustration and negative impact on employee morale. Business planning is anticipated to remain challenging until budget uncertainty is at least somewhat more resolved.
- Upcoming elections pose the risk of a more polarized Congress which may further complicate their ability to reach a solution that avoids sequestration. General consensus is that the current uncertainty and business churn is too dysfunctional and painful. The business community may even prefer sequestration over the status quo uncertainty. While a hit to spending, the clarity of sequestration may enable more efficient and effective planning and overall business operations.
- While overall federal spending is anticipated to shrink, the size of the pie for contractors should not, especially given the mission and cost avoidance reliance on technology. This dynamic lends an implied “stability” to the IT and professional services market. The real question will not only be how big the market is, but also how can companies drive growth and profitability, especially in a low price technically acceptable procurement environment. In some ways, contracting is feeling more like a regulated utility as it becomes “decommercialized” after many years of trying to “commercialize” the market. Too many real solutions that require innovation are become commoditized by the acquisition community. These challenges are more pressings and of concern than the budget itself.
- Expect more oversight and compliance around rates, compensation, and OCI, amongst others. While investment in these areas are often lost in the wake of rapid growth by contractors, moving forward it’s important that these issues remain front in center in strategic planning and overall business execution.
- While headlines and political rhetoric paint a gloomy picture of the DoD spending environment, the US remains the “guarantor of the global security system”. Given this role, mission support to for Defense and Intelligence should still present meaningful contracting opportunities for the long term, despite the negative sentiment given the sheer size of the absolute spending.