The end-of-year spending spree is set to begin in about a month, as the federal government heads into the last quarter of fiscal 2018. And agencies still have tens of billions of dollars to spend on information technology products and services.
As it has in past years, much of that spending will go through the National Aeronautics and Space Administration’s Solutions for Enterprise-Wide Procurement (SEWP) V. Historical contract spending data shows that the vehicle has been heavily used at the end of the fiscal year and customers are likely to turn to it again as fiscal 2018 wraps up.
Bloomberg Government’s analysis shows about $30 billion to $35 billion in remaining IT contract obligations likely to be awarded by the end of September. IT contract obligations are on pace with those of fiscal 2017, but agencies have more money to spend this year.
A $35 Billion Problem
Civilian agencies have obligated $12 billion for IT products and services from the start of fiscal 2018 through May 15. That’s about the same pace as the $12.2 billion that was obligated during the same period in fiscal 2017.
This year, the civilian agency IT budget for fiscal 2018 is $45.6 billion, up from $45 billion in fiscal 2017. Comparing IT contract obligations with budgets shows that civilian agencies are slightly behind in spending.
Pentagon IT spending is also lagging a bit. DOD obligated $8.1 billion on IT through Feb. 15 in fiscal 2018, compared with $7.6 billion through Feb. 15 in fiscal 2017 — an increase of about 4 percent. Bloomberg Government used Feb. 15 year-to-date figures for DOD because the department reports spending on a 90-day delay. The defense IT budget got a bigger hike this year than civilian agencies with an increase to $35.7 billion in fiscal 2018 from $33.4 billion in fiscal 2017 — a rise of 7 percent.
Based on the historical proportion of IT contract obligations to IT budgets, civilian and defense agencies combined spend 74 percent of their IT budgets on contracts. The remaining budget appropriations are spent on government personnel, office space, and other internal costs.
Although the chart above shows about $38 billion in IT to be spent by Sept. 30, it doesn’t account for the DOD reporting lag. Since DOD hasn’t reported all obligations to date, the expected IT spending by the end of September is more likely $30 billion to $35 billion.
Smarter in September
As agencies approach the year-end surge, they’ll look for ways to spend their remaining IT funds quickly, and SEWP is set up to do just that.
The SEWP program office runs like a business, with everything the office touches taking less than a day to complete, SEWP’s program manager Joanne Woytek told Bloomberg Government.
That shouldn’t be interpreted by agencies as a free pass to use SEWP to get to an award in 24 hours if they haven’t prepared for the acquisition — or wait until the last day of the fiscal year to add a new offering. But if the contracting agency already has a request for information out and has done some market research, SEWP can probably help, Woytek said.
During the months leading up to Sept. 30, SEWP makes some changes to make sure that the end-of-year rush runs smoothly, Woytek said. In August, the SEWP program office extends its customer service hours and by September, weekend hours become available and some restrictions on getting quotes back on the weekends are removed. Those who no longer work in customer service — even Woytek — pitch in during those months.
The office uses outreach to market the use of SEWP and improve the vehicle’s offerings by ensuring the inclusion of modern and emerging technologies. But those efforts soften toward the end of the fiscal year when agencies are busy.
Woytek said that SEWP customers are also more savvy in September. Agencies will buy more big-ticket items to expend their funding at the end of the year, and small orders using credit cards will decline. Because of that, the number of task orders that the SEWP office must process doesn’t increase significantly.
SEWP for Everyone
Their methods are working. SEWP is highly utilized at the end of the fiscal year, according to BGOV data. Almost one third of fiscal 2017 SEWP obligations were awarded in September, more than double the proportion of the overall federal market obligations spent in September.
The obligations are also substantial, with $1.25 billion awarded in September 2017. That beats the September 2017 obligations on the largest IT contract vehicle, the General Services Administration’s Schedule IT-70. A total of $1.15 billion was spent through IT-70 in September, accounting for 21 percent of the schedule’s fiscal 2017 contract obligations.
Civilian agencies used SEWP more often throughout fiscal 2017, and much more in September. Almost two thirds of the month’s spending via SEWP, $822 million, came out of civilian agencies.
Because products are often easier to buy than services — some are available commercially, while others have well-defined requirements — one might expect product purchases via SEWP to increase near the end of the fiscal year.
The proportion of SEWP obligations spent on products increased throughout fiscal 2017. September, however, wasn’t the month with the largest proportion of SEWP obligations for products. Product buys on SEWP actually spiked in May, to almost 70 percent, with September a close second.
The amount of services being bought through SEWP has increased since fiscal 2013 — 24 percent of SEWP obligations were for services in fiscal 2013, a number that rose to 39 percent in fiscal 2017. Although agencies can’t acquire all their IT-related services through SEWP, the scope is broad, Woytek explained. With IT services spending growing governmentwide, agencies may rely on SEWP V more moving forward.
Contractors can prepare for SEWP recompetes using BGOV’s Contracts Intelligence Tool. Almost 5,000 SEWP task orders valued at $1.5 billion will expire before the end of fiscal 2018.
MGT Act: A New Option
If agencies are struggling to put IT appropriations on contracts by Sept. 30 or don’t want to deal with the end-of-year spending spree, they may transfer leftover operations and maintenance budgets into the working capital funds created by the Modernizing Government Technology Act.
This would make the funding available for three years and direct the money to IT modernization programs, which include cybersecurity, digital services and cloud computing programs. It would also transfer some expected fiscal 2018 contract obligations to future years. That could change contractor strategies for winning end-of-year IT obligations.
(Laura Criste is a federal market analyst with Bloomberg Government.)