Contract spending could drop more than 10 percent in 2009

Purchases by federal agencies will drop by double digits in fiscal 2009, with most of the decline coming from the Defense Department, according to a forecast by a federal market research firm.

Spending on contracts by the federal government will drop by more than 10 percent from fiscal 2008 to fiscal 2009, from $490.7 billion to $440.4 billion, according to the consulting firm FedSources Inc. in McLean, Va. The company analyzed the president's fiscal 2009 budget proposal to issue its spending projections.

The Pentagon would experience the largest decrease, a drop of 12 percent, from $316.3 billion to $278.4 billion. "It's not a pretty picture for the Department of Defense," said Ray Bjorklund, senior vice president and chief knowledge officer for FedSources.

Civilian agency spending on contracts is expected to drop 2.7 percent, from $148.5 billion to $144.4 billion. Spending by large civilian agencies will remain mostly flat, but spending at the Homeland Security Department could drop by more than 18 percent. Small agencies will fare better, with FedSources predicting that many will experience slight budget increases.

Bjorklund, who spoke Wednesday at conference sponsored by the Coalition for Government Procurement, said most civilian agencies would funding programs at current levels. He predicted little new spending or changes to existing programs for fiscal 2009 or fiscal 2010, which he called "the last Bush budget."

Bjorklund said a sluggish national economy and a growing deficit are pushing spending down. A lack of procurement expertise in government and the increase in federal employment, which consumes a larger share of the budget, also could play a part in dampening spending, he said.

Bjorklund added that the political uncertainty of the wars in Iraq and Afghanistan was a primary driver in the estimation that military spending will drop. Presidential hopeful Sen. Barack Obama, D-Ill., has promised to remove troops from Iraq immediately if elected, and presumptive Republican nominee Sen. John McCain, R-Ariz., has said he would keep a U.S. troop presence in Iraq until 2013.

"There's going to be less outsourcing and a tighter market," Bjorklund said.

Reduced spending also would affect defense research and development, federal civilian health care and intra-governmental programs. Bjorklund predicted spending on durable goods, including computers and other IT equipment, would decline 13.2 percent.