What to Make of Rapidly Shrinking Federal Services Spending?

This article, by David Wyld, was originally published on Public Spend Forum

The ongoing government shutdown has shone a light on the stresses placed on government contractors when the money dries up. But a recent report from a bipartisan think tank shows that federal services spending was already falling, and has now dipped to pre-fiscal 2009 levels, and services spend may fall even further if sequestration continues. The decline in services contracting has been greatest in the area of building and construction, and while both small businesses and the largest contractors have seen declines, medium and large companies saw the greatest decline in awarded dollars.

Recently, the Center for Strategic and International Studies (CSIS), a bipartisan public policy research institution, based in Washington, DC, released a major report breaking down the dynamics of federal acquisition spending for services. The analysis,“Structure and Dynamics of the U.S. Federal Services Industrial Base, 2000–2012,”was prepared by the CSIS’s Defense Industrial Initiatives Group. The report, which is incidentally over a hundred pages long, is illuminating in that it looks at the overall trends on services spending—and the specific impact that changes in contracting and budget reductions have had on agency-by-agency spending for specific categories of services over the past decade, and for the most recent full federal fiscal year (FY2012). And so for vendors of services of all types—from construction to IT to medical services—the sections dealing with their areas of spending should be of particular interest.

Headlines from the CSIS Report

The headlines coming out of the CSIS report deal with some very interesting trends that the center’s analysts found when mining the federal acquisition data. For Fiscal 2012 (ending September 30, 2012), the federal government’s services spend declined from $332 billion to $308 billion year-over-year, representing a 7% overall reduction. While services spending on equipment-related services actually increased by 7% (from $29.3 billion to $31 billion), federal outlays for services in all five other categories under examination by the center fell. These were information and communications technology (ICT); professional, administrative, and management support (PAMS); research and development (R&D); facilities-related services and construction (FRS&C); and medical services (MED). In fact, spending on building services (in the FRS&C category) fell by the most: more than 11%.

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