Budget Cuts Bring 11 Percent Decline in Contract Spending for 2013

The sequester, the winding down of the wars in Iraq and Afghanistan, and overall budget cuts produced an 11 percent decline in federal contract spending in fiscal 2013, according to the third annual Bloomberg federal industry leaders study released on Tuesday.

With spending on defense contracts slowing by 15 percent, overall federal contracting fell from $516.3 billion in fiscal 2012 to $462.1 billion in fiscal 2013.

The companies leading Bloomberg’s list of the top 200 contractors remained defense firms, with their rankings unchanged from the previous study. The five companies that did the most business with the government in fiscal 2013 were: Lockheed Martin Corp., with $44.3 billion in contracts; Boeing Co., with $21.6 billion; General Dynamics Corp., with $14 billion; Raytheon Co., with $13.7 billion; and Northrop Grumman Corp., with $10.8 billion.

“All three companies in the top 10 that increased their contract totals -- Lockheed Martin, Huntington Ingalls and McKesson Corp. (No. 10) -- benefited because they worked on politically protected programs,” the analysts wrote. Those programs were the F-35 Joint Strike Fighter for Lockheed Martin, a “number of warships for Huntington Ingalls and pharmaceuticals for the Veterans Administration for McKesson.”

A key trend, the report said, is that “products survived better than services. Of the top 10 companies primarily involved in products, five protected or increased their contract award dollars, compared with three of the top 10 companies that provide services.” Many moved from defense to markets more insulated from budget cuts, such as health care, information technology and cybersecurity.

The study ranks vendors by the value of their prime, unclassified contracts. Of all 200 companies in the rankings, 106 had declines in contract awards from a year earlier, including seven of the top 10. The other 94 companies increased their government obligations despite the overall contracting decline, the report stated.

Of the 18 civilian Cabinet departments and major agencies studied, seven spent more on contracts in fiscal 2013 than in fiscal 2012, Bloomberg found. The top-spending agency was Energy, with biggest gainers in contracting spending being the Education, Treasury and Housing and Urban Development departments. The agency that cut contracting the most was the U.S. Agency for International Development, which trimmed awards by 17 percent.

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