WashingtonExec 2014 Market Outlook Series
As we turn the page on 2013, we look forward to a new year and new opportunities for innovation and growth in the government contracting community. This past year we experienced budget sequestration, a 16-day-long government shutdown, and a perpetually increasing focus on cyber security and healthcare IT.
WashingtonExec reached out to those most knowledgeable and experienced individuals in the federal contracting space. We asked executives in and around the beltway for insight regarding where they see the government contracting community headed in 2014. Topics discussed include M&A activity, cloud computing, healthcare IT, defense, mobility, and more.
Dr. Craig Reed is the Senior Vice President, Strategy and Corporate Development of Engility Corporation. He is also the former founder and managing member of Growth Strategy Leaders, LLC, a business strategy consultancy he established in 2011. Prior to starting Growth Strategy Leaders, Dr. Reed served as the senior vice president of strategy and corporate development for DynCorp International and held leadership positions in strategy and business development with Northrop Grumman from 2005 through 2011. Engility Corporation announced last month that it will acquire Dynamics Research Corporation (DRC).
As the cloud of uncertainty around the Federal budget environment lifts a little as we start 2014, the Government services contracting community will begin moving forward again (after many were seemingly stuck in neutral throughout much of the last 18 months). Government program managers will have a better sense for their program and mission budgets, even if they are at lower levels of funding than in the past, and will be able to move forward with prioritized procurement plans.
That will be a positive development for companies that have positioned themselves to compete effectively on price, because Government customers will appreciate being able to get high quality services at the lowest possible price for all levels of technology and mission sophistication. Whether you call it Low Price Technically Acceptable (LPTA) or Best Value contracting at the lowest cost and lowest point of acceptable performance on the Best Value curve, customers will look for providers that can help them perform as much of their planned mission as possible within their available but reduced budgets. Customers will get back to re-competing contracts that they previously and sometimes reluctantly extended over the last year or two in the hopes of locking in lower costs for longer contract terms.
The same clearing of the uncertainty clouds will also get government contracting M&A activity moving forward again, especially in the government services sector. Greater budget certainty will facilitate more consistent if not more accurate forecasting, closing the valuation dislocation between seller expectations and buyer aspirations. As many have noted, after years of rising Federal budgets but an even faster increase in the total number of services competitors, the Government services sector is ripe for consolidation. Firms will use M&A to add scale needed to achieve the cost savings necessary to compete successfully in this market on price, while also looking to expand the breadth and depth of their offerings to position for an eventual and inevitable upturn in the Federal spending on services.
