The multibillion-dollar economic stimulus package now working its way through Congress will present several lucrative opportunities for private companies, a panel of acquisition and military leaders said on Tuesday.
Despite an expected slowdown in Defense spending during the next several years, the stimulus package will include billions in spending for both federal agencies and state and local governments -- some of which will trickle down to contractors. The Senate on Tuesday passed an $838 billion stimulus bill, while on Jan. 28 the House approved an $819 billion package. Congress plans to reconcile the two versions during conference committee negotiations before the Presidents Day recess.
"There is going to be a lot of money out there, and there is going to be a need for contractors," said former Rep. Tom Davis, R-Va., who now serves as the director of federal government affairs for Deloitte LLP. Davis, who said the stimulus windfall could be a "buffet dinner" for contractors, spoke during a breakfast reception hosted by law firm Arnold & Porter.
The government likely will award contracts to increase energy efficiency in federal buildings, expand health care information technology, and continue military construction projects. Meanwhile, billions more will be provided to state and local governments for shovel-ready infrastructure projects, creating business for small and mid-size construction firms.
The research firm INPUT has identified at least $62 billion in potential opportunities for contractors that are expected to stay in the final bill.
The House and Senate have included a host of oversight measures for the stimulus package, including protection for federal whistleblowers, public disclosure of all spending associated with the bill, and a clause requiring competition for contracts and grants.
But some fear that the administration's push to pass the bill quickly and to start spending money could result in mismanagement.
"Once the bill passes, there is going to be a rush to get money out the door, and it's going to create a host of acquisition problems," said former Rep. Jim Turner, a centrist Democrat from Texas. Turner is now a partner at Arnold & Porter.
Many of these problems could occur because state and local contacting offices are ill-equipped to manage such a high degree of spending as projected in the stimulus bill, said Alan Chvotkin, executive vice president and counsel for the Professional Services Council, a contractor trade association.
"There is going to be a lot of embarrassment in how this money is spent downstream," he said.
While cost overruns for Defense Department contracts generally hover around 30 percent, state and local governments traditionally go overbudget on similar jobs by 200 percent to 600 percent, according to Claude Bolton Jr., executive in residence at the Defense Acquisition University.
While the stimulus could present contractors with a quick shot-in-the-arm, long-term concerns for the industry remain on the horizon, particularly for firms that do a lot of business with the Pentagon.
Defense spending currently represents roughly 4 percent of the gross domestic product. With the Obama administration now beginning to change many agency priorities, Bolton speculated that Pentagon spending as a percentage of the GDP soon could reach 2 percent -- its lowest level since before World War II.
Defense contractors are likely to take some hits, with large and highly expensive long-term weapons systems such as the F-35 Joint Striker and Future Combat Systems, subject to potential cuts, panelists said on Tuesday.
Turner said the cuts might be necessary because the government is beginning to resemble the struggling automaker General Motors in that there are "too many models out there to support them all."
Retired Maj. Gen. James "Spider" Marks said the government cannot articulate clear and coherent requirements to contractors that match the needs of warfighters on the ground. Marks has visited Iraq several times, both with the Army and now as president and CEO of Global Linguist Solutions, a defense contractor.
"We're always looking in the rear-view mirror, trying to get it right," Marks said.