High-Wire Act

Agencies are walking a fine line in contract spending as budgets begin to tighten.

Here's a sampling of the headlines that appeared on the front page of the The Washington Post business section on a Wednesday in mid-July: "Banks' Health Questioned as Wachovia Posts $8.9 Billion Loss," "Yahoo's Quarterly Profit Slumps 18%" and "Soaring Fuel Costs Send Airlines to Steep Losses." Oh, and there was this one: "Lockheed's Earnings Jump 13%."

That would be Lockheed as in Lockheed Martin Corp., the runaway leader of the federal procurement pack. The company took in nearly $35 billion in government contracts in fiscal 2007, up $1.4 billion from the year before. It garnered 8 percent of the total federal market and bested its nearest rival, Boeing Co., by more than $9 billion in awards on the year.

Nearly $29 billion of Lockheed Martin's awards came from the Defense Department and its trend of gaining defense business continued into the first quarter of 2008, with boosts in sales of information systems, missiles, radar systems and satellites.

That's a nice hedge against an economy being battered by rising oil prices, the collapse of the housing market and plunging consumer confidence. Indeed, the Post reported, "The defense sector has suffered little in the economic downturn, instead benefiting from government spending on the occupations of Iraq and Afghanistan."

But lest you get the idea that Uncle Sam is running an endless gravy train, it's important to look at some other trends. Overall federal procurement spending topped $436 billion in fiscal 2007, but that was up only a little more than 2 percent from 2006. By contrast, spending jumped nearly 10 percent from 2005 to 2006.

Some agencies already are feeling the pinch. Procurement spending at the Homeland Security Department fell from $15.4 billion in fiscal 2006 to $11.7 billion last year. At NASA, contract spending went down from $14.4 billion to $10.7 billion during the same period. Even at the Pentagon, which is actively fighting wars on two fronts, overall spending went up only by about 3 percent.

Government could be looking at lean years ahead, too. Republican presidential standard-bearer John McCain already has proposed to implement a yearlong "pause" in domestic federal spending. That, his campaign says, would allow for a "comprehensive review of all spending programs," and would lead to "a plan to modernize, streamline, consolidate, reprioritize and, where needed, terminate individual programs."

For his part, Democrat Barack Obama has proposed a speedier timetable for withdrawing U.S. troops from Iraq than either the Bush administration or McCain has envisioned. That could lead to a more rapid decline in the war-related spending that has fueled increases in federal procurement in recent years.

Overall, the ranks of the biggest contractors were little changed from 2006 to 2007. The top five companies -- Lockheed Martin, Boeing, Northrop Grumman Corp., General Dynamics Corp. and Raytheon Co. -- were unchanged in the rankings. And the rich continued to get richer. The top five contractors all won substantial increases in federal procurement dollars, ranging from $1.2 billion to $2.9 billion.