Leslie Steele’s 2013 Outlook: Winners, Losers in IT Sector

Leslie Steele, InterImage

WashingtonExec 2013 Government Contracting Outlook Series:

The new year brings big changes for the Federal IT industry, and WashingtonExec is back with its Government Contracting Industry Outlook Series.

We are giving local executives the opportunity to share their thoughts on where they see our industry headed this year and beyond. Leaders were asked a series of questions focused on cloud computing, healthcare IT, defense, mobility, and more.

Leslie Steele, CEO of InterImage, spoke with us about her predictions for 2013 and the big winners and losers out of the IT sector:

“While there will be no big spending changes out of Congress in 2013, we will see significant change with big winners and losers in the IT sector. Federal budgets will remain relatively flat, which is effectively a small cut.  More solicitations will come out restricted to small business. Agencies will make more use of existing GWACs, issuing task orders versus new contracts.  And, large contracts will be broken into smaller task orders/contracts with shorter term, more clearly defined objectives.  Over time, an increasing number of agencies will make greater use of small businesses and smaller task orders as the success of those agencies that do so is recognized. This shift will have a more far reaching effect.  With a growing recognition of the inherent efficiency in working with smaller, more agile and cost conscious businesses on more tightly defined task orders, the Federal buyer will experience a long-term shift in buying behavior.  The shift to small business will drive even more teaming, and more focus on strategic teaming versus opportunity based teaming.

With budgets under pressure and scrutinized, agencies will focus on being even more cost conscious and this will put pressure on awarding to the low cost bidder even in best value solicitations. We will see some fallout from this as companies push rates below their ability to cover costs and then, consequently, fail to deliver. To keep pace with demand for IT, agencies will seek to consolidate functions and standardize processes, accelerating programs to improve and automate business processes.  Federal agencies will also look to incorporate methodologies to share services between agencies and reduce costs by eliminating redundancy.

There will be more M&A activity as companies seek to shore up their position in a sector and/or diversify their customer base.  However, the shift in buying from small business will cause a shift in the type of M&A behavior that will be seen.  Larger companies will seek to acquire participatory equity positions in smaller companies rather than completely subsume the acquisition target and strip it of its valuable small business status.   Strategic equity positions will be made by larger companies in an effort to benefit from the financial success associated with the upswing in small business activity as well as to more firmly solidify the relationship with preferred small businesses.”




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