Raking It In

Agencies are spending at historic levels-none more than Defense-but a downturn looms.

What happens when a nation fights a war overseas, battles the threat of terrorism around the globe and addresses the unprecedented effects of major natural disasters at home?

It writes checks to contractors for hundreds of billions of dollars, for one thing.

Federal agencies issued $388 billion in contracts in fiscal 2005, up more than 18 percent from the year before. Defense contracts topped $278 billion, a healthy increase from $229 billion in 2004.

The Army alone spent more than $103 billion on procurement in 2005. That's almost as much as the contracts issued by all civilian federal agencies combined ($109 billion). Much of the Army's spending came straight out of emergency appropriations for Iraq operations. Not only has Halli- burton Co. remained among the nation's top 10 contractors due to its logistics work on behalf of U.S. forces in the Middle East, but companies such as Bahrain National Oil Co. and Kuwait National Petroleum Co. have made their way onto the Top 200 list in recent years. Each had more than $300 million in contracts in fiscal 2005.

Other names are brand-new to the list this year. Take Fairmont Homes Inc. Its place among the top contractors was sealed when Hurricane Katrina roared ashore on Aug. 29, 2005. In short order, the company had $521 million in FEMA contracts for its GulfStream travel trailers. Likewise, Morgan Buildings and Spas Inc. was awarded nearly $400 million for trailers and mobile homes. And Circle B Enterprises vaulted onto the list on the strength of a $287.5 million FEMA contract for temporary housing for hurricane victims. Carnival Corp. garnered $236 million in contracts, funneled through the Navy, for providing short-term housing on cruise ships.

That adds up to nearly $1.5 billion in Katrina-related spending for those four companies alone. And keep in mind, the hurricane hit barely a month before the end of fiscal 2005, so these were among the earliest contracts awarded. Further effects of the vicious storms of 2005 certainly will be felt in next year's Top 200 Contractors list. And who knows what the summer of 2006 will bring?

Short term, it's likely that agencies will continue to spend money on contracts at historic levels. But what goes up almost certainly will come down. Emergency spending can't go on forever. And the long-term federal budget outlook is increasingly bleak, as deficits continue to climb and the entitlements bill for aging baby boomers comes due. Soon, the stakes in the federal procurement game could be very different.