Report: Defense firms face more volatility in 2017

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More than half of vendors who have expiring IT and services contracts with the Department of Defense face greater business risk in 2017 than they did in 2016, according to a new report.

Analytics firm Govini's 2017 "Expiring Contract Risk Analysis for Department of Defense Contractors" identifies more than $210 billion in expiring Pentagon contracts in 2017. While cyber and IT make up a smaller portion of that total than large weapons manufacturers – about $9 billion -- increasing competition means more risk for IT and services firms.

"They have the largest number of vendors and also they have the most exposed number of vendors," Matt Hummer, director of analytics at Govini, told FCW.

Hummer said the report analyzes a company's exposure risk based on three factors: the size of expiring contracts held, the total share of expiring contracts as a percentage of a company's business and the number of firms that submitted bids on a contract.

"That's the one that really stands out for IT and services – is that many people are going after a lot of these bids," said Hummer.

"For every contract expiring in 2016, there was an average of six competing bids submitted. That number is expected "to rise to seven in 2017," states the Govini report.

Booz Allen Hamilton had the highest "Contract Competition Score" in the report as they faced an average of 23 competing bids on the DOD projects they won.

ASM Research came in as the third most exposed contractor because the company has a large portion of its DOD contracts expiring in 2017.

"Contract value is also an influential risk factor," states the report. "Accenture, the eighth ranked contractor by exposure, has the highest contract value score among IT & Service firms and in the top 10 overall."

Hummer said that anecdotally, Govini is seeing IT and services firms adding more DOD business to their portfolios, which translates to greater exposure to expiring contracts.

Another x-factor that is increasing uncertainty, if not risk, in 2017 is the political transition and whether expiring DOD contracts will be renewed, and if so, at what dollar amount.

But, the data do not just show risk and volatility, said Hummer. Companies can use the data in the report to analyze their competition and better pick the contract battles they want to fight.

For example, he said that if a company has a large contract that represents a substantial share of its business, it will defend that more aggressively, and competing companies might be better served to look at different product or contract opportunities.

Hummer said that in an increasingly competitive marketplace, IT and services companies need to spend more time learning the needs of their customers. That's not easy, he said, when government agencies don't always have clear and comprehensive IT acquisition strategies.

"Every agency is trying to modernize IT, and that's not just in the CIO's office," said Hummer. "They're trying to do whatever they can with whatever funds they can to make it easier for their staff to deliver on mission using IT…. But, it's happening in a very ad hoc way, there's no comprehensive policy that's guiding it, there's no comprehensive funding mechanism." That lack of frameworks, he said, adds more volatility to an already competitive market.

Yet while the data show more risk for industry, that could translate to benefits for the DOD and other agencies. Increased competition could lead to more innovative solutions and modest cost savings for the DOD.

"Ultimately we're at a state with technology that where it is it's going to be sophisticated, integrated enterprise IT buys rather than just finding a better way to buy a cheaper desktop," said Hummer. "There's only so much price pressure you can put on that."

About the Author

Sean Carberry is a former FCW staff writer who focused on defense, cybersecurity and intelligence.

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Reader comments

Wed, Dec 21, 2016

Am afraid the numbers are hooey. Booze Allen did not face an average of 23 competitors for each recompete won. The database used in this piece does not normalize for multiple award contracts, most of which were actually executed as task orders. Firms like Booze simply win a "contract" that is a license to sell and then sell many, if not all, task orders, on a low or no-competitor basis. There is a reason why there stok is at record highs! MORE Power to them! The market has less competition than ever. Don't believe the smoke blown here.

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