The government contracting market is one that, contrary to popular belief, is “real,” and it’s been maturing for the past fifty years despite a slew of buyer and seller factors that arrest its maturation according to Dr. John Hillen, an executive in residence and professor of practice within George Mason University’s School of Management (GMU).
The former Sotera Defense Solutions chief executive discusses “the future of the government contracting market” in a timely Washington Technology series based on a speech Dr. Hillen delivered as part of GMU’s Brown & Brown distinguished lecture series.
Dr. Hillen in his three-part series argues that the government contracting market is a “real market” because it’s characterized by the same traits — a diverse array of buyers and sellers, many choices in buying methodology, innovation, transparency, fair and not onerous barriers to entry, availability of capital for investment or mergers and acquisitions, different kinds of capital structures, ownership, governance and management — that “real” markets are.
He begins by tracing the birth of the services and technology-oriented government contracting market from its infancy — which in the 1960s saw the expansion of government responsibilities and the advent of accessible computer technology — to its teenage years marked by the terrorist attacks of 9/11 when federal contract actions grew during the next ten years at a compounded annual growth rate of 14.5 percent.
“Even with spending down from its peak, the GovCon market has become a mature young adult of a market,” Dr. Hillen writes, noting that the market’s “large, diverse, competitive, innovative [and] transparent” nature is what makes it worthy of further examination.
Dr. Hillen in part two walks us through the year 2012 when sequestration plagued industry and government with sequestration and the stalling of the market’s economic growth.
He examines barriers to “a more mature” government contracting market to argue for the market’s resilience, but potential to lose balance.
“Regardless of those dynamics that stalled economic growth in the size of the market (which peaked in 2009 at $340 billion in annual contracted services but was still close to $300 billion in 2012), the GovCon services market is not going away,” Dr. Hillen writes.
And while a slew of factors –including government demands technology for its citizen services, desire for workforce management flexibility and government workforce technical expertise deficit — should maintain the demand for GovCon services, Dr. Hillen suggests acquisition regulations and procurement methodologies that distort market rules and conditions could in the decade to come conceivably arrest the market’s maturation and innovation.
He notes that barriers to maturation come from both the buyer and seller side in the govcon market. Where, Dr. Hillen argues, government favors past performance at the expense of new entrants, innovation is stymied. A similar phenomenon transpires too, Dr. Hillen writes, when contractors ignore regulatory requirements — like the disabled workers minimum — that are at times difficult to fulfill.
“The integrity of the system and the noble intention of the laws are undermined as a result,” Hillen writes, noting that small business and 8a goals, compensation caps and wage floors “distort both ends of the labor market,” thereby rendering government oversight regimes predatory and prosecutorial.
And while “the government can still be itself and be a smarter buyer,” a slew of factors pull the market backwards in terms of maturity and make it “less competitive, discouraging investment, innovation and new entrants,” according to Dr. Hillen.
Innovation and market maturation languishes, too when, according to Dr. Hillen, status quo-oriented contractors encourage government buyers to keep intact labyrinthine procurement methods that only they can navigate.
“In other words, it’s not just the government – if you’re a contractor, as the saying goes, we may have met the enemy and it is us,” Dr. Hillen says.
A “real” market?
He closes the series by outlining the 12 characteristics of the govcon market that maintain it as legitimate market, namely that it: has many participants, maintains diversity of choice in buying and selling, demonstrates multiple planes and dimensions of competition and choice, offers innovation in many forms, is accessible to new entrants and robust and accessible at top level, is transparent, grows and offers value and so has ready access to diverse capital, has a range of ownership capital structures, has liquidity, maintains mature governance, is home to leaders from a wide variety of management backgrounds, and maintains within it a culture of reflection and continuous improvement and mechanisms.
He closes by encouraging market participants to seek vigorously to continue making GovCon a good market.
“By doing so GovCon will strengthen to its “character”, if you will, and be better defended against the idea that the market is really just a political process that can be manipulated by whomever is in charge or in the know,” Dr. Hillen says. “Anyone who works in GovCon today knows that is less true than it has ever been, but the best way to prove it is to continue to have the traits of a real market squeeze out those of an insider political process.”
Related: In January, Hillen was named operating partner at private equity firm LLR Partners. Read about that here.