Governmentwide technology contracts more popular, study finds

The federal government spends twice as much money now as it did four years ago under large governmentwide technology contracts, and a small number of companies win most of the business, according to a study released Wednesday by a technology research firm.

A governmentwide acquisition contract, known as a GWAC, is a generic term for a contract negotiated and managed by one agency but used by other agencies as well. Information technology GWACs cover a vast array of products and services, and agencies usually pay the managing agency a fee to use the contract.

The study, released by the Chantilly, Va.-based firm INPUT, found that in fiscal 2001, agencies spent $2.4 billion using technology GWACs, more than a two-fold increase from the fiscal 1997 figure of $1.1 billion. The $2.4 billion figure represents more than 6 percent of all federal technology spending that year.

The study examined only the awards won by prime contractors, and doesn't account for business won by subcontractors. It also didn't examine money spent through the General Services Administration's schedules, a set of contracts also open to all agencies. But a 2001 study by Federal Sources Inc., a market research firm in McLean, Va., found that agencies spent $13.3 billion in fiscal 2000 through the schedules and other GWACs combined. GSA figures show that agencies purchased $11 billion worth of technology goods and services through the schedules in fiscal 2001. Both Federal Sources and INPUT used a sample of 60 GWACs to conduct their studies.

Technology companies view GWACs as a "license to hunt" in the federal market. Businesses compete for a place on the contract, but then have to compete again for subsequent orders from agencies. INPUT found that while 135 companies have won such orders, more than 64 percent of the awards were tallied by only 10 companies. That figure represents $1.5 billion in contracts.

The top-performing companies in the study were Unisys Corp. and Northrop Grumman, which each scored 11 percent of all GWAC sales in fiscal 2001. Unisys GWAC sales totaled $273 million, and Northrop Grumman sales were $269 million. The top three GWAC winners claimed almost one-third of all awards.

The INPUT study noted that most firms have to spend more time and money than usual on GWAC sales and marketing efforts aimed at agencies to distinguish themselves from the major players who win most of the business. That means that while GWAC sales are healthy for some companies' bottom lines, at other companies, the cost of competing for work under the contracts can drain resources.

A small number of agencies also use GWACs most often. The Defense Department is by far the largest single GWAC customer, spending $401 million under the contracts in fiscal 2001, INPUT found. That represents 16 percent of all government GWAC spending that year.

Along with Defense, the Transportation, Commerce, Health and Human Services and Agriculture departments spend more of their annual technology budgets through GWACs than any other agencies. Transportation spent 34 percent of its fiscal 2001 dollars through GWACs, for example.

Those agencies also manage major GWACs. The INPUT report noted that the agencies that make the most use of GWACs are the agencies that administer them.

The report also pointed out that GWACs aren't popular in all agencies, and suggested that firms tailor their contract offerings on an agency-by-agency basis. Some agencies barely use the contracts. The Federal Trade Commission, the Environmental Protection Agency, the Federal Emergency Management Agency, and the Education and Veterans Affairs departments each spent 1 percent or less of their fiscal 2001 technology budgets through GWACs, INPUT found.

The 10 most frequently used GWACs accounted for more than 81 percent of all sales in fiscal 2001, or nearly $2 billion, according to the study. GSA manages the most popular GWAC, called Millennia, which specializes in large-scale technology projects.