The Professional Services Council's forecast this year for the federal government is like an aging rock star contemplating a stage dive: optimistic, but cautious and wary too.
PSC is releasing the report, which projects what the federal marketplace will look like until 2021, on Nov. 18.
The recent budget deal brought more clarity than the market has had in some time, but continued gridlock on Capitol Hill still generates uncertainty.
"So the question [the contractors ask] becomes, how do I manage inside this environment, where my customers are not necessarily able to make long-term decision or execute their business plans in a fiscal year?" said Rich McFarland, PSC Vision Defense Team Chair.
Much of the pressure comes from a budget that continues to see dwindling discretionary spending, forcing agencies to cope with fewer resources and contractors to advocate the value of their skills over the price of them. What that means for agencies, as well as federal contractors, is a greater need for certainty in the budget process to know how much funding will be available for services.
"Fundamentally, we need a budget and not a [continuing resolution]," McFarland said. "Because it allows our customers to be able to do new starts. It also allows us to compete against our customers for new work rather than just re-competing for old work."
Over the next five years, Congress will have to decide on major spending bills; including funding for highways, disability insurance solvency, Federal Aviation Administration reauthorization and the 2017 budget. Many of those bills, or similar ones, have been at the center of protracted battles in Congress in the past. Those battles have contributed to a lot of unpredictability in terms of government spending, which Congress may no longer be able to afford.
"We're looking at a scenario, under current circumstances, that interest payments on the debt alone could equal in the mid-2020s what is today three-quarters of the discretionary budget of the federal government," PSC president Stan Soloway said. "That's enormous pressure point, and if you are thinking of government as a business, it's untenable and unsustainable."
Those spending challenges could impact issues that have drawn a lot of attention in 2015, including IT spending.
PSC officials noted that while federal IT spending has actually been 1.6 percent below budget requests since 2011, they project spending to go up to $85.9 billion by 2021, with 1.6 percent of annual growth.
While that figure is welcome in the face of IT infrastructure upgrades at federal agencies, PSC Vision presenter Robert Haas, said they really reflect the rise of inflation and not a funding surge.
"So really your purchasing power is about the same five years out than it is right now," he said.
So contractors looking to help the government phase out legacy systems, upgrade IT and shift toward big data a cloud systems stand to gain in the next five years.
"Really the challenge the government is facing is shifting that mix of operations and maintenance funding to new development," Haas said. "These emerging opportunity areas are one way they can help accomplish that."
DoD services spending is projected to remain around 55 percent of the DoD budget, said Alan Chvotkin, PSC executive vice president, with growth areas in warfighter support, focus areas like cyber and analytics and knowledge-based services.
After a three-year, 13 percent slide from its 2010 peak, civilian spending is leveling out, but Soloway said that one of the prime areas that the service industry can improve is with a loosening of regulations.
"We are looking at some estimates of 25 maybe even 30 percent on the dollar going to compliance, much of which is probably perfectly appropriate and some of which is non-value added," he said. "That compliance burden is an enormous and maybe the single biggest barrier to the kind of innovation the government wants."
PSC's is holding its 51st Vision Federal Market Forecast Conference Nov. 18 and 19 in Falls Church.
