The government contracting space continues to serve as a significant growth market for small businesses, especially those who are able to achieve and sustain multiple set-aside designations at the outset.
Small businesses in the federal market can benefit from contracting opportunities and programs designed to enable their long-term success. At the same time, every small business in the federal space needs to stay abreast of emerging trends and changing priorities across the federal government. Here are four key trends worth noting as you grow your small government contracting business:
1. A shifting focus for federal technology.
Federal agencies have been aggressively investing in new technology for years, but under the Modernizing Government Technology Act (MGT) of 2017 and the National Defense Authorization Act of 2018, federal agencies are under specific mandates to drive new spend in key directions. First off, agencies impacted under the act are authorized to establish Information Technology Working Capital Funds. And second, the government is authorized to establish a central Technology Modernization Fund administered by a Technology Modernization Board.
Key areas of focus specified within the legislation include shared services, agile development, cloud migration, data center consolidation, cybersecurity and the adoption of commercial off-the-shelf (COTS) applications. In addition, the law offers additional funding for long-term investments and enables both the General Services Administration (GSA) and individual federal agencies to use up to three years to contract against available funds, rather than the typical one-fiscal-year spend restriction.
2. More investment in innovative opportunities.
Securing access to emerging innovations in research and development remains a longstanding challenge for federal agencies. However, agencies are increasing their reliance upon Other Transaction Authority to support investments in innovation. Other Transaction Authority (“OTA”) describes the streamlined procedures that federal agencies may use to procure innovative research or prototypes, without the constraints of a typical contract, grant, or cooperative agreement. What OTA provides is speed, accessibility and flexibility to executing research and prototyping programs.
The Department of Defense is the primary agency utilizing this authority, having grown its OTA spend from $3.5M in 2013 to a record of $412M in 2017, for example. One reason for this is the increase in the OTA threshold from $250M to $500M, literally doubling the limit under the National Defense Authorization Act. Civilian agencies, however, can also use OTA as well and growth in its utilization across the federal government is anticipated.
3. More emphasis on best-in-class offerings.
Under the Office of Management & Budget (OMB) category management strategy, a Best-in-Class (BIC) solution is a product or offering that has been identified as preferable or advantageous for use across the federal government. The basis for this determination is fourfold.
First, the solution must support the move toward mature, market-tested capabilities across the government. Second, it must enhance the optimization of spending within the federal category management framework. Third, it must enable acquisition leaders to access and utilize pre-vetted, government-wide solutions. And fourth, it must increase the availability and access to transactional data for buying analysis. The BIC program formally launched in late 2017 with the first comprehensive list of BIC contracts. Information technology is one procurement area that will be directly impacted by BIC procurement, but by no means will it be the only one.
4. Consolidation will drive change in the middle market.
Historically, the government contracting industry has been subject to a bell curve effect, with most contractors clustering around either the small business end or the enterprise end of the market. This was fueled, in part, by structural realities of the marketplace as well as federal regulations impacting teaming and calculations used to identify eligibility for small business status and other designations.
Contractors in the middle market ($25M to $500M) are continuing to make inroads and through consolidation, increase their numbers and thus dominance in the federal marketplace. For example, a record $138B was spent through contract vehicles and other channels on solutions offered by middle market government contractors in 2017, with a heavy focus on technology and professional services through multiple-award contracts. Specific vehicles that are propelling middle market firms in the federal space include the GSA Schedule 70 information technology program and the NASA Solutions for Enterprise-Wide Procurement V program, among others.
This may also suggest that it is an ideal time for small government contractors to expand through merger and acquisition (M&A) opportunities, and that small government contractors seeking a near-term exit could benefit from this trend as well.
Each of these four trends further emphasizes a focus on technology, innovation, simplicity and agility. As a result, small businesses in the federal space who can harness their expertise and relationships to respond to these priorities will be well-positioned for ongoing growth and future opportunities across federal agency relationships.