A Survival Story: The Federal Market
With the switch to the 2025 federal administration, came a sense of extreme urgency in the federal market. The Department of Government Efficiency, also known by its acronym DOGE, brought about scrutiny directed at federal agencies' spending practices. With it came a sense of unease exacerbated by news media as the pace of announcements and lack of clarity into the changes led to theories en masse over the potential impacts for the federal market. For federal contractors, the sudden urgent threat to revenue streams has led to a highly sensitive environment, which is understandable given that they are directly impacted by events in D.C. As the news surrounding changes continues to pile up, this blog post seeks to explore past events and how they impacted the federal market, but not as catastrophically as what was initially expected by contractors. Paralysis by what may come next out of Washington, D.C. may spell regret for contractors looking to survive the changes.
Background
There have been several significant events and initiatives that have threatened to upend the federal market in the past, and understanding them suggests that the market will continue on, even if it ends up looking a little differently than it has in the past. We, as human beings, have a tendency to remember the most recent of these events, and forget the rest. This can lead to a sense of doom in the federal contracting market, viewed present-day as the 'worst it has ever been.' As a market as a whole, we would do best with a quick reminder of past initiatives that were taken by the federal government over the last decade and a half that, at the time, threatened to upend the entire federal market.
The Impact of Government Shutdowns on the Market
Since 2010, there have been 4 shutdowns that have spanned from a few hours to just over a month (History, 2023). But here's the thing, every single time a government shutdown has looked imminent, huge levels of concern has swept across the market, especially concerning the potential of the debt ceiling. Each time, the shutdown is considered far worse than the last with bigger, more disastrous financial effects... But if you take a look at the near shutdown that happened just last year, the concern was amplified by the increasingly impassioned political environment, more so than the risk of the shutdown itself or the possibility of actually hitting the debt ceiling. While each shutdown does present risks for the market and the contractors who work so hard to support the government, shutdowns have yet to entirely upend the market.
The Rise and Resistance of Universal Procurements
Universal procurements originated in the early 2000s. This genius idea was to increase buying power for the federal government by pushing all similar agency needs into the same contract. This enforced a strict relationship between the solution and the only contractor approved to deliver it. Let's use missile systems for an example because it was an 'easy' target for putting universal procurement into action, since the systems are deployed from a wide variety of air and ground platforms. At first, this concept had quite a bit of support and was viewed as a real threat to the market industrial base. However, the realities of procurement then propping up monopolies and limiting the industrial base supporting congressional districts' economies soon grew resistance for the idea. The reality of using universal procurements stood in stark contrast to the use of competition to drive the best value in the market. And thus, the market survived.
The Challenges and Realities of Federal Insourcing
In the late 2000s, the idea of insourcing seemed to gain favor in the federal government. This was the idea of hiring people that were already working for federal contractors, into the federal government. This was seriously considered as an option, especially for individuals looking to leverage the benefits that came from working in federal positions. However, this idea was also halted by harsh market realities that threatened contractors' revenue. For one, insourcing would bloat the federal government with workers (FAIR Institute, 2009). And secondly, most of the people that they wanted to insource, the top experts in their fields, had little interest in working directly for the government.
The 2008 Recession: Mixed Impacts on Federal Contracting
Getting straight to the point, the contracting space certainly felt the impacts of the recession as companies rethought the cost of indirect positions and cut down on employment in non-critical areas. However, private companies were impacted far greater as they initiated layoffs while the federal government and its contractors actually increased hiring under the implementation of the ARRA (Bureau of Labor Statistics, 2013).The American Recovery and Reinvestment Act of 2009, also known as ARRA, increased federal spending, pushing it directly into the federal market and fueling federal contractors (Congress, 2009). Once again, a significant event that did have monumental impacts on the U.S. economy, but not as much as was expected for the contracting community itself.
The Controversial Legacy of LPTA in Federal Procurement
LPTA is the bane of high quality contractors' existence. Why? Because it forced contractors to focus on the prices that they offered buying agencies for services that, if done wrong, could not only be disastrous when implemented, but also waste time and a huge amount of money to fix. LPTA was an initiative implemented in procurement based on the idea that money is saved by the federal government if they only focus on price. Unfortunately, this market threat hasn't entirely dissipated in some industries, but its implementation quickly proved that focusing on price came at a heavy cost. The deliverables to the buyer were no longer the same quality that was expected. So, like the other threats mentioned, LPTA was not about to stay. The market kept moving and while LPTA is one initiative that's a bit 'sticky,' market demands have pushed it to the wayside. It's use has even been prohibited for certain federal requirements (Defense Acquisition University). Again, LPTA threatened the market status quo balancing quality and cost, but didn't destroy it.
The Budget Control Act of 2011: Navigating Fiscal Constraints
The Budget Control Act of 2011, BCA for short, was enacted to set strict limits on defense and non-defense spending for the federal government. It aimed to reduce budget deficits by at least $2.1 trillion by 2021, with have of those reductions coming directly from the defense budget (CRS, 2018). This initially caused quite the scare because it wasn't just an initiative and seemed to say that budget caps would be the new norm for the federal market. However, this act has been repeatedly amended by Congress, proving that even budget caps on critical spending areas wouldn't be able to stop the market.
Adapting to COVID-19: Adaptation of the Federal Market
To be clear, this wasn't an initiative that now threated the market, but a worldwide pandemic. No one knew quite what would happen with the market, especially with new health guidelines that could potentially disrupt the delivery of services. The delay of current procurements to make enough space for emergency contracting needs left a lot of contractors wondering what their pipelines would end up looking like. But as the last few years have shown, the market was more than capable of adapting and navigating the unprecedented waters of a pandemic the shut the entire world down.
Final Thoughts: The Resilience of the Federal Market
Obviously, this a time of major uncertainty for a lot of people who also may feel helpless as decisions are made in Washington, D.C. without clear explanation. For those in the federal contracting space, we must remember that the market is resilient for a reason. The vast majority of spending that occurs in the market is essential. It's mission critical. So while pieces can be cut away, federal contractors are, in fact, here to stay. The federal government is dependent on them, especially if aiming to reduce the federal workforce. Who else would be able to take over that work? Undoing a complex machine like federal procurement cannot suddenly happen in a single day, let alone a few weeks or months.
Right now we are faced with a harsh reality. One that many well-established contractors with decades of experience have faced before. We cannot stop time, and we certainly cannot stop changes in the market. Markets evolve, as is evident by the instances described above. This will happen again, maybe in the same direction, or maybe reverting the changes that are occurring now. Only time will tell. The question remains, will federal contractors freeze in the fear of work disappearing? Or will they strategize on how to evolve their business with a market that has proven that it is not going anywhere?
