On March 9, 2017, the U.S. Government Accountability Office (“GAO”) issued a Report entitled “Contracting Data Analysis — Assessment of Government-wide Trends” (the “Report”), detailing Government-wide trends in federal contracting for goods and services during the five-year period from 2011 through 2015. The report highlights trends in spending, competition, contract types, and contract recipients, and provides a snapshot of contracting by the Navy, Army, Air Force, and the ten civilian agencies with the highest contract obligations for fiscal year (FY) 2015.
The Report noted that DoD spending, while down since 2011, still represented the majority of the government’s spending in FY 2015—$273.5 billion of that year’s $437.8 billion federal contracting obligations. The ten civilian agencies with the largest contracting obligations for FY 2015 were the Department of Energy ($25.1 billion), Department of Health and Human Services ($21.7), Department of Veterans Affairs ($20.1), National Aeronautics and Space Administration ($15.9), Department of Homeland Security ($13.4), General Services Administration ($9.2), Department of State ($8.4), Department of Justice ($7.7), Department of Transportation ($6.1), and Department of Agriculture ($6.1).
Importantly, GAO reported that overall, spending on federal contracts decreased from FY 2011 to FY 2015 by nearly 24%. The primary reason for that decline was a 31% decrease in spending by the DoD agencies during that time, during which civilian spending decreased by less than 7%. GAO noted that the largest decreases occurred for both DoD and civilian agencies around sequestration in FY 2013. But following sequestration, civilian obligations rose back to near FY 2011 levels, while DoD obligations continued to decrease.
The trends identified in GAO’s report stand in direct contrast to the emerging details of the Trump administration’s proposed federal budget, which was released on March 16, 2017 by way of the Office of Management and Budget’s “Budget Blueprint.” That blueprint proposes a significant increase in DoD funding, at the (potentially significant) expense of a variety of civilian agencies.
As for DoD spending, the proposed budget purports to provide “for one of the largest increases . . . without increasing the debt[.]” To that end, the Budget Blueprint proposes a $54 billion increase to defense spending for 2018 by repealing sequestration cuts applicable to defense spending by increasing non-combat spending. It emphasizes, among other things, increasing equipment, including more ships for the Navy and F-35 Joint Strike Strikers to the Air Force. The Budget Blueprint also proposes a 6.8% increase for the Department of Homeland Security, and a 6% increase for the Department of Veterans Affairs.
In order to accomplish this boost to defense spending without increasing the debt, the Budget Blueprint proposes substantial cuts to civilian agency funding, including withdrawing funding entirely for a number of independent agencies and programs. Of the ten agencies the GAO Report identified with the highest spend, the Budget Blueprint proposes significant cuts to five of them: Department of Agriculture (21% cut); the Department of Health and Human Services (17.9%); the Department of Justice (3.8%); the Department of Transportation (13%); and the National Aeronautics and Space Administration (0.8%). The budget also proposes significant cuts to Department of State base funding and the Department of Energy.
Congress has expressed reservations about the proposed cuts in the Budget Blueprint, and therefore significant revisions to any version of the budget that ultimately is enacted appear likely. Nonetheless, contractors—especially those that do business with agencies targeted for the most significant cuts—should pay close attention to the proposed budget as it passes through the legislative process. Regardless of what the final version looks like, the demographics of federal contracting can be expected to change substantially in 2018, and those who rely upon federal spending will need to adjust accordingly.