Insight | November 22, 2016

Back to Business: Federal Contracting in the Trump Administration

By Curt Cote

The next four years will be anything but business as usual. Among projected social and economic policy changes, President-elect Donald Trump has signaled significant shifts in how the incoming administration manages federal agencies. These changes will impact how agencies are organized, how programs are measured, and how agency budgets are prioritized. Censeo believes that these changes will result in a significant impact on the acquisition community, including a surge in staff augmentation contracts, an increase in solicitation volume, changes to the Federal Acquisition Regulation (FAR), and a focus on re-directing funds away from traditional Beltway contractors.

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While the presidential transition will have a major impact on all aspects of agency budgeting and operations, the workload will be felt most immediately by agency acquisition professionals and government contractors. Agencies and contractors should start making plans for sustained programmatic success come Inauguration Day. We have created a timeline of potential impacts the federal procurement community can expect over the short-, mid-, and long-term.

Impact Over the Next 12 Months: Pivots and Volatility

Spending Shifts to Staff Augmentation Contracts

President-elect Trump’s plan includes a widespread federal hiring freeze, a policy that could reduce the federal workforce by more than 100,000 employees each year. The capability and capacity of the remaining workforce may be insufficient to overcome these cuts, driving agencies to increase staff augmentation contracting. Furthermore, since overall spending will not grow this fiscal year, increased staff augmentation spending will be paid for by repurposing budget currently slated to purchase products.

“Feast or Famine” Contracting Cycles

The Trump transition team has started to review how agencies are organized and how they allocate their budgets. There will be some high profile changes that will begin on Day One, but given the government’s scope and complexity, most reviews and subsequent changes will take months to complete. By spring 2017, many underperforming or disfavored programs are likely to be closed and replaced with new programs that are aligned with administration priorities. This will have a major impact on the already busy summer contracting season.

Some contracts will be repurposed to support new programs and priorities, but many will be incompatible with new directives, leading to a significant uptick in Q3 solicitations. Contracting offices should prepare for a heavier than usual workload, and contractors should brace themselves for uncertainty as legacy contracts are not renewed and the lengthy process of proposal development and evaluation begins. Furthermore, this increased spike in contracting activity could occur annually if the Trump administration continues to retire underperforming programs and implement new priorities.

Impact Over the Years Two and Three: Private Sector Influence

A Higher Bar for Contractors

The Trump administration plans to appoint business leaders to prominent leadership positions. These appointees will bring private sector “best practices” to bear on federal management, including practices designed to hold vendors to higher performance standards.

For example, in the public sector the execution of option periods is almost a given, and many program and contracting professionals feel constrained by their inability to hold vendors accountable for poor performance. The new administration will likely enact management reforms designed to strengthen contractor performance management, including greater flexibility in denying the execution of option periods, withholding payments for poor performance, and using performance-based payment plans.

Revisions to the FAR

Our analysis shows that only 20 percent of acquisition professionals are satisfied with FAR and other procurement rules. The Trump administration intends to aggressively reduce federal regulation, and parts of the FAR and other procurement-related executive orders will likely be rolled back.

In addition to potentially cancelling directives such as the Fair Pay and Safe Workplaces directives, the administration may take moves to shift government contracting closer to commercial sector practices, allowing agencies to talk more openly with industry, simplifying requirements governing vendor management, compelling agencies to negotiate more aggressively, and strengthening the government’s ability to hold vendors to a higher performance standard.

Increased Modernization Spending

Effective management relies on effective information technology and data, and the Trump administration is expected to re-focus efforts to prioritize the modernization of the federal IT infrastructure. These reforms will result in a higher proportion of federal IT spending being directed towards modernization and investment projects, and fewer dollars being allocated for operations and management.

Impact in the Term’s Final Years: Structural Shifts

Federal Dollars Shift to the States

While Washington, D.C. is the epicenter of federal spending, a pivot away from the Greater Washington Metropolitan area is expected during the final years of a Trump presidency. Given the prevailing feeling that the government is working for “the establishment,” a message that dominated Trump’s campaign, policies are likely to shift federal contract spending away from D.C. and towards the South and Midwest states. This will first be seen by Congress increasing federal funding to states to improve the nation’s infrastructure, which will be followed by increased construction and program management spending.

Contracting Backlog

If the hiring freeze holds, contracting will be one of the most impacted workforces. Forty percent of all contracting officers are older than 50, and are approaching – or at – retirement age. If this workforce is not replenished, agencies will have to find ways to speed the acquisition process, or accept an ever bigger backlog of contracting actions, since, as discussed, contract volume is expected to increase.

Next Steps

The incoming Trump administration has been defined by unpredictability, but one thing is certain: the next four years will be full of changes for all individuals working in the public sector. The thousands of federal employees who make up the acquisition workforce and the thousands of firms that provide $400 billion in goods and services to the government are going to be on the front line of that change. As the country plans for 2017, the government and contractor community should take this time to thoughtfully plan for the changes to come and be ready to embrace the challenges and opportunities that surely await.

DISCLAIMER

This document contains projections and other forward-looking statements regarding future events.   These statements are only predictions and reflect our current beliefs and expectations with respect to future events. These predictions are subject to risk and uncertainties and subject to change at any time.

Keep reading to learn more about Censeo’s work with civilian government agencies.