News & Events

Today’s Workforce Cuts and Federal Furloughs – Potentially Tomorrow’s Competition

On February 4th Lockheed Martin announced a voluntary layoff program to reduce mid-level management.  The Company expects to eliminate 300 – 350 positions.  The layoffs were unrelated to sequestration fears, but rather focus on remaining competitive and efficient.  However, it does seem these types of initiatives are becoming more prevalent.  With Federal furloughs beginning in April and months to come, public sector employees may seek new career opportunities.  Finally, there have been numerous initiatives targeted at agencies and acquisition officials to increase set-aside procurements.  What is the potential impact of these dynamics?  Tenured private and public sector employees may be encouraged to utilize their skills, experience, and relationships to start new Federal contracting companies.

A few of the enticing aspects of entrepreneurship in Federal contracting is the relatively lower initial capital requirements and perceived business risk as compared to commercial markets.  Government services businesses in particular often have the benefit of bidding a new contract with résumés of experienced professionals, without necessary having to “keep them on the bench” awaiting a contract award.  In addition, the longer-term nature of Federal contracts in comparison to commercial work affords visibility, and the ability to more confidently redeploy profit from existing work into new opportunities.

While the potential for one of these new start-ups to build a robust team, winning bid, and take down a defense prime’s recompete during its early lifecycle seems unlikely, smaller contractors may want to stay increasingly aware of new competition.  In reality, many of these companies started their businesses in much the same way.  The only difference is there now the potential for a perfect storm, whereby Federal-focused, well-experienced employees are being enticed and even pressured to re-evaluate career paths and aspirations.  Presented below is a seven year comparison of (i) market pricing for public government services contractors, (ii) government services M&A activity, and (iii) number of new contractors.  This graph highlights the difficult economic and contracting environment in 2009 due to the recession, new administration, tightening budgets, and credit turmoil.  Interestingly, this year also marked the establishment of largest number of new contractors during this seven year period.

Who knows, perhaps today’s Federal employee who is frustrated with losing a day’s pay every week will someday own a company that takes an identified opportunity from a large contractor.  However, in the near-term set-aside contractors should stay more focused than ever on knowing the competition landscape and putting resources toward aggressively bidding recompetes and new work.

Contributors: Marc Marlin and Robert Dowling