Boom and Bust
The federal technology market in fiscal 2003 was marked by unfulfilled hopes of a governmentwide spending boom driven by homeland security projects, a surge in military buying spurred by the wars in Iraq and Afghanistan, and a procurement scandal that spawned new restrictions on how the biggest buyer of technology in the government goes about its business.
First, the dream unfulfilled. In the last days of the 1990s and into early 2000, the federal technology market was humming. The government was running a substantial budget surplus. Procurement reforms had made it easier for agencies to buy billions of dollars in goods and services through convenient governmentwide contracts. Technology companies, seeing many of their hopes and fortunes crashed on the rocks of the dot-com collapse, beat a path to Uncle Sam's door and saw their government contracting businesses bloom.
Against this backdrop, many market watchers predicted a spending surge after the Sept. 11 terrorist attacks, fueled by counterterrorism and security initiatives, many of which depend heavily on technology. (By 2003, the government was spending $57.7 billion a year on technology. That includes both the prime contracts covered in the rankings in this issue of Government Executive and spending on smaller contracts.) The president's fiscal 2005 budget, however, gave relatively little to technology, raising the government's estimated annual spending to $61 billon, hardly reflective of the gold-rush mentality that gripped the market when spending jumped 40 percent from 2000 to 2003. Since then, the federal technology budget has grown only 6 percent.
The bright spot-if you can call it that-for technology companies in fiscal 2003 was ongoing military operations in Iraq and Afghanistan. The military's demand for combat technology and logistics and navigation systems has fueled sales. War may be hell for some, but it means more federal dollars for high-tech hardware and software firms, logistics and supply-chain management companies, and established defense contractors such as Lockheed Martin Corp. and Northrop Grumman Corp. A study by technology research firm Input of Reston, Va., found that the military services awarded $65.4 billion in technology-related contracts in 2003, many of which last for several years.
But just as Defense Department and military spending on technology is peaking, new purchasing restrictions are being put in place at the Pentagon. In reaction to a series of procurement scandals at the General Services Administration's Federal Technology Service, in which employees of the fee-for-service contracting operation were found to be spending money set aside for technology on items such as construction services and marine equipment, Pentagon policymakers ordered the department's contracting personnel to play a more hands-on role before sending procurements out to GSA or any other organization.
From now on, for any Defense purchase of goods or services valued at more than $100,000, a Defense contracting officer must determine that it's cheaper to outsource the procurement, that the contract the outside agency plans to use is appropriate for the purchase, and that a contract administration plan is in place to make sure the department is getting what it paid for. Defense acquisition personnel have been put on notice-they will be held accountable for the actions of outsiders.
As for technology contractors' standing in the ranks, not much has changed. In fact, there's only one firm in the fiscal 2003 top 10 that wasn't there the previous year-reseller GTSI Corp. displaced TRW Inc., which was acquired by the lead technology contractor for fiscal 2003, Northrop Grumman.