This year got off to a rocky start for federal contractors, with the government shutdown that wiped out five weeks’ worth of their income—contractors, unlike their civil-service counterparts, didn’t get the benefit of legally assured back pay. It turns out, however, that this may in fact be one of the best times in years to be a contractor: A new study by Bloomberg Government finds that federal government spending on contracts has been rising steadily for three years straight and can be expected to do so through the next.
Bloomberg Government reports that federal spending on contractors grew from $442 billion in fiscal-year 2015 to $560 billion in fiscal-year 2018—a nearly 25% jump. That 2018 sum also marks the most that the federal government has spent on contractors since 2010, when it poured out $562 billion (and for context’s sake, remember that 2010 was the final year of the big post-recession fiscal stimulus).
Go big or go GWAC
Some of that growth is in governmentwide acquisition contracts—or GWACs—which agencies use to buy information technology. Bloomberg Government notes that the federal government spent $15 billion on GWACs in fiscal-year 2018, up from $9 billion in 2014. The surge took place as agencies across the federal sector made efforts to modernize their legacy systems (the governmentwide push to expand use of cloud computing may have been a driver of this).
Much of the increased contractor funding overall—GWACs or no GWACs—is happening in the military and national security realm. The agencies spending the most on contractors include the Department of Defense and Department of Homeland Security, according to Bloomberg Government—although it finds that the Transportation and Energy departments are high spenders, as well. It reports that agencies’ top priorities for contractors include weapons and aircraft parts, as well as technology development and the wider gamut of professional services.
And on Bloomberg Government’s ranking of the top 10 contracted companies, nine are in the defense industry. Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman are a few of these top-ranked players. One healthcare company made the top 10, as well: McKesson Corporation, which has contracts to provide pharmaceuticals and other health services to Veterans Administration facilities and the Cherokee Nation.
“Companies concentrated in the professional services, information technology, facility services, and R&D categories have seen accelerated spending in recent years, and 2018 continued that trend at an unprecedented growth rate,” Donald Thomas, Bloomberg Government’s vice president and general manager, said in a press release.
We’re in fiscal-year 2019 now (it began October 1 of last year and ends this coming September 30). And while we won’t have the 2019 numbers tallied until some time after October, Bloomberg Government fully expects them to show growth in federal contract spending continuing unabated and possibly reaching as high as $565 billion.
It’s also bullish on more growth taking place through 2020. It owes its confidence, in part, to last month’s federal budget deal and other spending bills that have gotten the White House’s signature since February.
“The outlook for federal contractors is promising in the coming year thanks to the multiple spending bills—totaling nearly $1.4 trillion—that Congress passed in fiscal-year 2019,” Thomas said in the same press release.
This robust growth is happening, moreover, while overall federal government spending has been slowing to a comparative crawl. Federal “discretionary” spending—the wide swath of general federal-agency expenditures that congress raises or cuts year-by-year in its appropriations bills (as opposed to things like Social Security or Medicare, which are required by law to go up as more Americans become eligible for them)—crept up only 3% in fiscal-year 2019 and is projected to rise just 3.7% more in fiscal-year 2020, according to Office of Management and Budget figures.
In addition, many federal agencies have been losing money in the last few years. The departments of Agriculture; Health and Human Services; Housing and Urban Development; State; and Transportation—among others—are all making do with anywhere from 10% to 27% less funding in fiscal-year 2019 than they had in fiscal-year 2017, according to the Congressional Budget Office.
Contractors are in Demand
Contractors are often told that their jobs aren’t as secure as the permanent GS-level federal positions are. To some degree, that is true: Contractors do take on risks that their civil-service counterparts don’t. It’s also true that they miss out on some perks that civil-service employees take for granted.
But make no mistake about it: Federal contractors are valued workers. Bloomberg Government’s numbers on federal contract spending makes that clear. And if the Bloomberg Government analysts are right, that value will only continue to rise as this fiscal year leads into the next.