Closing the ‘Gusher’
Agencies are under orders to spend a little less freely.
This year marks the 20th anniversary of Government Executive's first Top 200 Federal Contractors issue. Back then, a mere $9 billion in federal contract awards earned a company the top slot in the rankings. Now that company, McDonnell Douglas, has long since been absorbed by then-rival Boeing Co., which took in more than $25 billion in contracts in fiscal 2009, the year on which the rankings in this issue are based.
And that still wasn't enough to make Boeing government's biggest contractor-not by a long shot. That honor once again goes to Lockheed Martin Corp., with upwards of $41 billion in contract awards.
The twin effects of inflation and consolidation in the contractor ranks-especially in the defense industry-have had a dramatic impact on the government purchasing landscape. But just as important is the fact that the "peace dividend" anticipated two decades ago as the Cold War drew to a close never materialized. Instead, hotter wars broke out and securing the American homeland became a pressing national priority.
In May, Defense Secretary Robert Gates acknowledged that the Sept. 11 attacks had opened a gusher of federal spending-nearly doubling the base defense budget. Now, Gates said, the time has come for a reckoning: "The gusher has been turned off, and will stay off for a good period of time."
In late July, President Obama offered his own stern talk about the future of federal contract spending. In a White House address, the president said his administration had "gone after wasteful government contracting with a vengeance." Agencies, he said, were on track to hit a goal of saving $40 billion in contracting by the end of fiscal 2011.
This being Washington, though, the leaders weren't necessarily talking about cutting contract spending, just slowing its growth. In mid-July, Daniel Gordon, administrator of the Office of Federal Procurement Policy at the Office of Management and Budget, told lawmakers that between fiscal 2000 and 2008, agencies' contract spending went up at an annual rate of 12 percent. Between fiscal 2008 and 2009, he reported, the growth rate slowed to 4 percent.
That left room for a lot of spending. After all, the government is still trying to prop up the economy, wind down operations in Iraq, ramp them up in Afghanistan, and respond to unforeseen crises.
That means a company like Oshkosh Truck can jump into the Top 10 contractor ranks on the strength of building mine-resistant vehicles to protect troops. Supreme Foodservice AG can take in more than $900 million in contracts to feed troops deployed overseas. And Triple Canopy Inc. can make an appearance among the contracting elite because it supplied $450 million worth of "integrated security and mission support services" to the Defense and State departments.
In the past 20 years, the nature of the companies that appear on the Top 200 charts has changed. In 1990, defense hardware companies dominated the list, along with rocket makers and the occasional academic institution running an Energy Department research lab. Today the defense firms are still there-just in smaller numbers. And alongside them, you'll find health care companies that serve the military, big management consulting firms and the contractors hired to clean up Energy's nuclear weapons facilities.
And with those priorities continuing to soak up resources, Uncle Sam will remain a big buyer.