Federal Contract Spending Fell 3.1 Percent in 2014, Study Finds

Despite an overall hike in government spending in 2014, federal contract spending last year fell by $14.5 billion or 3.1 percent, according to the latest annual federal industry leaders study from Bloomberg Government, released on Friday.

But the good news for industry is that last year “may have represented the dawn of a new normal in the federal marketplace: contract spending was down following the drawdown in Afghanistan and Iraq, but greater budget certainties allowed greater planning and projections,” the analysts noted.

The drop in Pentagon spending was partially offset by a $1 billion hike in spending by the Health and Human Services Department. HHS spent about a billion more last year on services to medical providers.

Grabbing the largest share of the $447.6 billion in contract spending was Lockheed Martin Corp., with $32.5 billion, followed by Boeing Co. ($18.5 billion), General Dynamics Corp. ($15.5 billion), Raytheon Co. ($12.6 billion), and Northrop Grumman Corp. ($10.6 billion).

Overall, the 200 companies in the rankings accounted for 62 percent of contract spending, slightly lower than in 2013, with contract awards declining for 78 of the firms.

“One strategy used by successful contractors was moving into technology markets, including both services and equipment, or facility services, categories that experienced less budget pressure in fiscal 2014,” wrote analysts Duncan Amos and Timothy Yeaney. “Multiple-award contracts were a key to success for many vendors, as agencies continued their shift from single-award contracts to MACs,” they said.

Those multiple-award contracts were a boon to small businesses, which won 40 percent of the work under that arrangement in 2014, “fueled mostly by the growth in spending on technology services and health IT,” Bloomberg wrote. Many of the successful small business contractors are value-added resellers of computer products.

The category experiencing the largest increase in contract awards was knowledge-based services, the study showed, following by facilities-related services and research and development. Contractors faced fewer restrictions in 2014, the analysts wrote, because the omnibus spending bill enacted in January 2014 “allowed out-year planning and a level of certainty that permitted vendors to make investments.”

(Top image via Garry L./Shutterstock.com)