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Posted on: August 22, 2012 | Posted By: John Slye Related Categories: IT Budget, Contract Awards, Forecasts & Spending, Federal

Could This Year Be a Record-Breaking Federal IT Busy Season?

With the August dog days of summer comes a Congressional recess and, this year, the onset of a major election cycle covering both Presidential and Congressional elections. But August also brings the acceleration that leads up to the final weeks of the federal fiscal year (FY) that ends September 30 and that means federal departments and agencies are working to wrap up their FY 2012 procurements to meet the deadline, a.k.a. federal busy season. And the fiscal turmoil of FY 2011 and 2012 could make this season especially challenging. The concept of federal busy season has grown over time as federal departments sought to spend the remainder of their budgets in a use it or lose it atmosphere where unspent monies are often interpreted by appropriators and/or OMB as unnecessary funding, leading to decreased funding levels in future years. However, this atmosphere has been compounded by the trend toward federal budgets being delayed well into the fiscal year often into Q2. The increased availability of procurement data bears out the phenomenon. Looking at reported prime contract obligations over the last sixteen years reveals a major shift in the timing of federal IT procurements away from the first fiscal quarter (Q1) and predominantly toward the fourth quarter (Q4). The consequence is that federal agencies now spend a huge proportion of their th annual IT budgets in the federal fiscal 4 quarter July through September. (See chart below.)

The heightened fiscal uncertainty of the last few years marked by economic recession, meteoric federal debt, budget delays and more frequent and longer continuing resolutions (CR) has rippled through agency budgets and timelines, making it tough on agencies to know what funding they will have and how best to manage it. All this has exacerbated the phenomenon and pushed even more spending to the fourth quarter. (See chart below.)

Implications Could we see historically record-breaking spending? In our annual federal IT forecast, Deltek estimates that the total federal contractor-addressable market for information technology products and services in FY 2012 is $121 billion across executive, legislative, and judicial branch agencies, government-owned corporations such as the U.S. Postal Service, and the intelligence community. So if the above trend in the timing of contracting holds true, then federal departments and agencies could obligate as much as $45 billion in the fourth quarter of FY 2012. Even if it is half that amount, we are still looking at big spending. Polarization on budget priorities is amplifying the shift. The pattern of delays in getting an approved federal budget into nd the 2 quarter of the fiscal year is a well established trend, so much so that it has become the expected norm. The current House leadership is bucking this trendthey have moved their appropriations bills along faster than most recent Congressesbut the Senate was unable to pass a budget at all in the last Congress and the current Senate appears to be headed toward the same result. This may explain, in part, the significant up-tick in Q4 contract obligations in FY 2011 versus FY 2010. Will budget sequestration fears mute the trend? Tension has risen in Congress and the industry over the impacts of impending budget sequestration come January 2013. While several members of Congress are attempting to take action to deal with the budget issues and avoid sequestration, many in the industry have been warning that we are already seeing acquisition and economic impacts of the impending threat, a.k.a. soft sequestration. They are noticing things like delayed or cancelled procurements, schedule changes, reduced orders, etc. The scope and magnitude of such occurrences could significantly impact this federal busy season and beyond, whether or not formal budget sequestration occurs.

In the end, this years federal busy season may be one of the most unusual ever. To know whether or not it will be one for the record books we will have to wait until the dust settles.