Fiscal 2014 was a period of greater certainty and predictability for federal contractors. The disrupting factors of fiscal 2013, including sequestration, continued drawdowns in Iraq and Afghanistan, and fierce budget debates culminated in the December 2013 Ryan-Murray agreement, which allowed vendors to plan for future government spending –at least for two fiscal years, 2014 and 2015.
The fourth annual BGOV200 Federal Industry Leaders Study ranks the top 200 vendors by value of prime, unclassified contracts awarded by U.S. agencies in fiscal 2014. It analyzes the top contracts at 24 agencies and departments, and in 20 different purchasing categories. Click here for the list.
The BGOV200 explores the contracting dynamics of the past year and how contractors have fared and reacted. The study finds:
Total contracts in fiscal 2014 were $447.6 billion, down 3.1 percent from $462.1 billion in fiscal 2013. The share of total government obligation dollars won by the top 200 was 62 percent, which is a slight decrease from fiscal 2013’s 65 percent.
Contract awards won by 78 companies in the BGOV200 declined from 2013, including 5 of the top 10. The other 122 companies increased their government obligations despite the overall contracting decline.
One strategy used by successful contractors was moving into technology markets, including both services and equipment, or facility services, which experienced less budget pressure in fiscal 2014.
Multiple-award contracts (MACs) were a key to success for many vendors, as agencies continued their shift from single-award contracts to MACs. Agencies awarded several long-awaited mega-MACs and announced major contract consolidation initiatives.
Protected programs were less of a factor for successful contractors than in fiscal 2013, as spending on large programs such as the F-35 Joint Strike Fighter declined.
Mergers and acquisitions remained slow in the federal marketplace, but contractors continue to look for ways to expand in the public sector amid shrinking spending. Health information technology has been a significant area for federal acquisitions as companies compete for access to specific contracts.
Inflation-adjusted dollars, in billions
While sequestration dominated almost all of fiscal 2013, the December 2013 Ryan-Murray budget agreement, named after its negotiators, Democratic Senator Patty Murray and Republican Representative Paul Ryan, eased $63 billion in automatic spending cuts by raising budget caps and set in motion the process that resulted in the enactment of a $1.1 trillion omnibus spending bill in January 2014.
The bill set the base defense budget at $520.5 billion –not much more than the post-sequestration level of $518 billion in fiscal 2013. The nondefense budget totaled $491.8 billion, $27 billion more than fiscal 2013 post-sequestration levels. The 2014 budget for Overseas Contingency Operations (OCO), also known as “war funding,” was set at $91.9 billion — a slight decrease from the 2013 enacted amount of $98.7 billion. In some instances, the Department of Defense (DOD) used OCO funding to exceed the defense base budget funding cap set by the Budget Control Act because OCO funds aren’t subject to the cap. However, Congress limited what the DOD could get away with: It rejected a Pentagon request to pay for new Lockheed Martin Corp. (No. 1) F-35 fighter jets and Boeing Co. (No. 2) AH-64 Apache helicopters with OCO money.
While the overall federal budget increased in fiscal 2014 from 2013, contracting dollars declined by $14.5 billion, reflecting the shrinking defense budget, which peaked in 2010. The Defense Department has continued fighting to raise the budget caps on defense spending while at the same time adjusting to the reality of smaller budgets.
Some companies did better in the fiscal 2014 budget than they did the year before. General Dynamics Corp. (No. 3) and Huntington Ingalls Industries Inc.’s (No. 10) Virginia-class submarine, which was battered by sequestration, had significant increases: Congress added $950 million to President Barack Obama’s budget request, for a total of $6.2 billion. The money put on contract with General Dynamics for the submarines increased to $6 billion in fiscal 2014 from $3.2 billion in fiscal 2013.
Contractors faced fewer restrictions in 2014 because the omnibus allowed out-year planning and a level of certainty that permitted vendors to make investments. Having a full-year appropriations bill, rather than the continuing resolutions under which many agencies had been operating, allowed those agencies to issue new contracts and start new programs that had been shelved during the budget debates.
Nine of the 20 purchasing categories explored in the BGOV200 had more contract dollars in fiscal 2014, compared with only two with more money in 2013. Information technology had a successful year: Both technology services and technology equipment funding increased in 2014.
One of the most interesting narratives of 2014 includes aircraft, which was overtaken by technology equipment as the fifth-largest spending category. The aircraft market decreased by more than $11 billion from 2013 to 2014, but that trend is more symptomatic of the sometimes lumpy nature of federal spending than an actual decline in the aircraft market.
Most of the decrease was in obligations for Lockheed Martin’s F-35 Joint Strike Fighter, which dropped from $14.2 billion in fiscal 2013 to $4.4 billion in 2014. It comes as little surprise, then, that Lockheed Martin, the top federal contractor, saw its contract revenue decline by a similar amount, from $44.3 billion in 2013 to $32.5 billion in 2014.
This decrease has to do with the cyclical nature of federal spending. Aircraft was one of the few categories that increased obligations in fiscal 2013, in part due to a $3.4 billion F-35 production order signed in the final days of the fiscal year. Some of the decline in fiscal 2014 may also be due to the lingering effects of sequestration. Sequestration in 2013 particularly hurt large programs, and all of its impacts may not have been felt by programs until fiscal 2014.
Fiscal 2014 contract obligations, dollars in billions
The largest category increase was in facility-related services, which increased by $3.7 billion to $65.2 billion in fiscal 2014. This increase was primary concentrated at the departments of Defense and Energy. Many of the major contracts for running the Department of Energy’s (DOE) national laboratories were increased. In a rare industry upset, Consolidated Nuclear Security LLC (No. 48), a joint venture between Bechtel Group Inc. (No. 11), Lockheed Martin, Orbital ATK Inc. and SOC LLC, with Booz Allen Hamilton Holding Corp. (No. 12) as a teaming subcontractor, won the contract for operating the DOE’s Y-12 National Security Complex in Tennessee and the Pantex Plant in Texas. The facilities had previously been run by Babcock & Wilcox Inc. (No. 52), which fell 27 spots in the rankings this year.
Medical services, which had a $2 billion increase in 2014, helped UnitedHealth Group Inc.’s (No. 16) continued rise in the rankings. Ranked No. 129 just two years ago, the company has benefited from its management of the DOD’s TRICARE T3 Managed Care contract.
The Department of Health and Human Services (HHS) spent around a billion more in fiscal 2014 on services to help Medicare providers improve care, primarily through contracts for Quality Improvement Organizations (QIOs), directed by the Centers for Medicare & Medicaid Services. In the first stages of an overhaul in 2014, two vendors won contracts to oversee QIO programs. Kepro Inc. and Livanta LLC, the two companies that won awards for the Beneficiary and Family Centered Care-QIO, each received more than $100 million in fiscal 2014 as part of the QIO overhaul.
Seeking opportunities in health care generally seemed to be a winning strategy in 2014. McKesson Corp. (No. 7), a pharmaceutical distribution company, increased its obligations by almost $1.5 billion, in part due to a $1.7 billion contract for delivery of mail-order pharmaceuticals to the DOD, a large increase outside of its traditional market, the Department of Veterans Affairs.
Medical services and technology services supporting health continue to be significant growth markets for federal contractors. The upswing in health spending is likely to continue as the DOD, VA and HHS ramp up health IT investments. The VA has had significant growth in its IT budget since fiscal 2009, and it requested $204 million more in IT investments for fiscal 2016 than it received the previous year, suggesting that this trend is not slowing anytime soon. Technology work related to Medicare, Medicaid and the Affordable Care Act is expected to continue to grow.
After weathering a large decrease in 2013, space vehicle obligations rebounded in fiscal 2014, increasing by more than $600 million. United Launch Alliance LLC (No. 19), a joint venture between Lockheed Martin and Boeing, increased its obligations — and its BGOV200 ranking — through its Evolved Expendable Launch Vehicle, funded by the DOD. Obligations declined for the joint venture’s main competitor, Space Exploration Technologies Corp. (SpaceX), which dropped to No. 96.
Fiscal 2014 contract obligations, dollars in billions
While the Army, Navy and Defense-wide agencies endured large spending cuts in fiscal 2014, a number of civilian agencies increased their contract spending. The departments of Energy, Health and Human Services and State all increased spending by a billion dollars or more. BL Harbert International LLC (No. 55) benefited from the State Department’s construction contracts for embassies in England, Chad and Kosovo. Harris Corp. (No. 29), which fell in BGOV’s rankings, was able to offset some of its loss by increasing its work at the Department of Commerce, supplying satellites and antenna systems.
While continuing budget pressures made 2014 a challenging year for contractors, many were able to maintain or increase their contract totals by focusing on technology-related programs or concentrating on successful contract vehicles. In fact, more than half of the top 200 companies increased their contract revenue in 2014. However, the gains by the winners were less than the losses by the losers, as the overall market continued to decline.
The consistent year-over-year decline has made government buyers more cost-conscious, and they’ve increased efforts to obtain pricing data and consolidate contracts while pushing industry toward contraction. Consequently, vendors are using whatever advantages they have to make the most of a tough market.
For example, Alion Science & Technology Corp. (No. 63) was able to increase its contract revenue by $200 million on its expiring Information Analysis Centers (IAC) contract. The recent IAC recompete created MAC follow-ons, but Alion was able to load up on no-bid task orders on its expiring single-award contract, thus using a unique advantage to capture greater market share.
Together, obligations for technology services and technology equipment — representing a wide range of IT solutions — increased by $1.8 billion in 2014 as agencies focused on modernization, cloud, and agile development.
Booz Allen Hamilton, for example, helped boost its obligations by almost doubling its work on the VA’s Transformation Twenty-One Total Technology Program, known as T4. The program helps the VA acquire IT services to improve its IT capabilities. Accenture Plc (No. 50), which also grew its obligations in 2014, increased its work on T4 by stepping in to help save the flailing HealthCare.gov website.
Technology services work at the Department of Homeland Security helped Unisys Corp. (No. 121) increase its ranking and its obligations in fiscal 2014, particularly on the Alliant Large-Business MAC.
A major theme in federal IT was the public sector’s move into the cloud. Viewed as an innovative, cost-effective solution, cloud computing has gained momentum. Unlike vendors in other markets, however, large cloud companies such as Amazon.com Inc., Oracle Corp. and VMware Inc. don’t appear in the BGOV200 because their products are usually sold through value-added resellers, which take advantage of small-business set-asides.
Multiple-award contracts were central to many major developments in fiscal 2014: The year was marked by continued contract consolidation, vigorous competition and small-business gains. Federal procurement through MACs totaled $115 billion in 2014, more than a quarter of all prime contract spending. While this represented a decline from fiscal 2013, the decrease was concentrated in the Department of Defense. Civilian agencies actually increased their MAC spending in fiscal 2014. In fact, MACs have accounted for a growing share of civilian contract dollars since fiscal 2007.
The top companies by MAC revenue in fiscal 2014 were Lockheed Martin, Booz Allen Hamilton and L-3 Communications Holding Corp. (No. 8) — and both Booz Allen and L-3 increased their 2014 contract dollars.
Of the top 15 MACs in fiscal 2014, 10 experienced growth, including Schedule 70, a General Services Administration schedule for IT products and services, and SeaPort Enhanced, the Navy’s MAC for procuring support services. International Business Machines Corp. (IBM) (No. 43) and Science Applications International Corp. (No. 14), the biggest winners on Schedule 70 and Seaport Enhanced, respectively, both increased their contract revenue and rankings in 2014. Among the top MAC contractors, IBM, Deloitte Touche Tohmatsu Ltd. (No. 51) and CACI International Inc. (No. 25) rely the most on MACS, respectively receiving 81 percent, 80 percent and 79 percent of their total contract dollars from MACs in 2014.
MACs represent more than opportunities for large businesses. Small businesses won more than 40 percent of all MAC dollars in fiscal 2014, fueled mostly by the growth in spending on technology services and health IT.
Contractors can expect greater MAC consolidation as the government pushes to curb contract duplication and eliminate overlapping scopes. Civilian MAC spending will probably continue its upward trend, fueled by health IT spending — both VA and HHS are expected to rely heavily on MACS. Recent rules encourage the use of small-business set-asides on MACs, and small businesses will continue winning a substantial share of money on MACs. Finally, contractors can expect MACs to become larger, more flexible procurement vehicles as the traditional lines separating professional and technology services become increasingly blurred.
In fiscal 2014, companies appeared to continue the trend of spinoffs to increase efficiency, with little mergers and acquisitions activity as they waited for more certainty in the federal marketplace before making significant investments. Companies also continued to focus on increasing internal efficiencies to offset decreasing obligations.
The most significant development in 2014 was Exelis Inc.’s (No. 30) spinoff of Vectrus Inc. (No. 54). Exelis dropped in both contract revenue and BGOV’s rankings, mostly because a share of its contract dollars went with Vectrus.
One significant purchase during fiscal 2014 was Vencore Inc.’s acquisition of QinetiQ North American Inc. from QinetiQ Group Plc (No. 179), in order to gain access to QinetiQ’s services and solutions group.
After a slow 2014, fiscal 2015 has been marked by a series of high-profile mergers, suggesting a wave of restructuring as the federal market consolidates. In February, Alliant Techsystems Inc. (No. 35) completed the acquisition of Orbital Sciences Corp. (No. 69), renaming itself Orbital ATK Inc. and spinning off its sporting ammunition group to its shareholders. Also in February 2015, Engility Holdings Inc. (No. 60) completed its purchase of TASC Inc. (No. 147), increasing its systems engineering and advisory services capabilities. Also in February, Harris Corp. announced that it would acquire Exelis, a purchase that has the potential to double Harris’s federal contracting revenue. These significant acquisitions, all of which involved two vendors in the BGOV200, may be indicative of continued M&A activity in 2015 and into fiscal 2016.
After the upheaval of sequestration and a partial government shutdown, the Ryan-Murray budget agreement reached in December 2013 allowed a more normal budget process for fiscal 2014 and 2015. This continued certainty in funding was a relief to contractors after years of continuing resolutions. The fiscal 2015 budget included base funding of $522 billion for defense and $512 billion for nondefense, relatively stable numbers compared with 2014. However, total OCO funding dropped to $87 billion, a decrease of more than $10 billion from 2014, signifying that contractors will have to continue to adjust to flat federal budgets and potentially declining contract dollars.
Topline funding for 2016 is still unresolved. President Obama’s request exceeds the budget caps in law by $38 billion for defense and $33 billion for nondefense. The request indicates that IT and health are likely to continue driving opportunities in fiscal 2016. Most civilian agencies sought additional money for IT investments, and VA requested an overall budget increase.
The fiscal 2016 budget blueprint approved by the House and Senate would maintain the caps, while allowing additional OCO money that appropriators could use to pay for expenses that are traditionally considered “base” needs — an approach that has drawn White House veto threats.
While stakeholders may continue to debate spending on specific programs, contractors can use budget information to project future government spending. The spending caps that have dominated budget debates have had an unintended consequence for federal contractors: The caps, instead of setting a ceiling amount as the drafters intended, have effectively set the minimum amount of discretionary government spending.
Fiscal 2014 may have represented the dawn of a new normal in the federal marketplace: contract spending was down following the drawdown in Afghanistan and Iraq, but greater budget certainties allowed greater planning and projections. This means that the marketplace is becoming increasingly competitive, but contractors who are able to connect the strategic with the tactical will continue to thrive.
|1||Lockheed Martin Corp.||$32.5 billion||1|
|3||General Dynamics Corp.||$15.5||3|
|5||Northrop Grumman Corp.||$10.6||5|
|6||United Technologies Corp.||$6.6||7|
|8||L-3 Communications Holdings Inc.||$5.7||8|
|9||BAE Systems Plc||$5.1||9|
|10||Huntington Ingalls Industries Inc.||$4.7||6|
|11||Bechtel Group Inc.||$4.5||11|
|12||Booz Allen Hamilton Holding Corp.||$3.8||16|
|14||Science Applications International Corp.||$3.5||12|
|15||Health Net Inc.||$3.2||17|
|16||UnitedHealth Group Inc.||$3.2||43|
|19||United Launch Alliance LLC||$2.9||39|
|20||Computer Sciences Corp.||$2.6||18|
|21||General Electric Co.||$2.5||22|
|22||Los Alamos National Security LLC||$2.3||32|
|23||Leidos Holdings Inc.||$2.2||23|
|24||Battelle Memorial Institute||$2.1||29|
|25||CACI International Inc.||$2.1||30|
|26||Bell Boeing Joint Project Office||$2.0||31|
|28||Honeywell International Inc.||$2.0||33|
|31||California Institute of Technology||$1.7||36|
|32||General Atomics Technologies Corp.||$1.7||28|
|33||Royal Dutch Shell Plc||$1.6||122|
|34||DynCorp International Inc.||$1.6||13|
|35||Alliant Techsystems Inc.||$1.6||40|
|37||Jacobs Engineering Group Inc.||$1.5||37|
|38||Johns Hopkins University||$1.5||49|
|39||Lawrence Livermore National Security LLC||$1.5||44|
|40||Pacific Architects & Engineers Inc.||$1.4||58|
|41||Merck & Co Inc.||$1.4||45|
|42||University of California||$1.4||55|
|43||International Business Machines Corp.||$1.4||51|
|47||Cardinal Health Inc.||$1.3||50|
|48||Consolidated Nuclear Security LLC||$1.3||NR|
|49||Valero Energy Corp.||$1.2||88|
|51||Deloitte Touche Tohmatsu Ltd.||$1.1||56|
|52||Babcock & Wilcox Co.||$1.1||25|
|53||SRA International Inc.||$1.1||57|
|55||BL Harbert International LLC||$1.1||135|
|57||Massachusetts Institute of Technology||$1.0||74|
|58||Anham FZCO||$985.9 million||NR|
|59||ManTech International Corp.||$971.9||47|
|60||Engility Holdings Inc.||$956.8||42|
|61||Savannah River Nuclear Solutions LLC||$940.9||65|
|62||Rolls-Royce Holdings Plc||$902.3||76|
|63||Alion Science & Technology Corp.||$893.2||85|
|64||Exxon Mobil Corp.||$879.1||121|
|65||Rockwell Collins Inc.||$878.9||73|
|67||CGI Group Inc.||$869.6||63|
|69||Orbital Sciences Corp.||$861.3||138|
|70||Foster Fuels Inc.||$859.9||NR|
|71||Verizon Communications Inc.||$809.0||99|
|72||CH2M Hill Cos.||$807.3||82|
|73||Sierra Nevada Corp.||$805.5||38|
|75||Arctic Slope Regional Corp.||$793.3||113|
|80||AP Moeller – Maersk A/S||$755.6||59|
|81||Blue Cross & Blue Shield Association||$733.6||90|
|83||Express Scripts Holding Co.||$711.8||102|
|84||Serco Group Plc||$711.5||83|
|85||Nana Regional Corp Inc.||$707.5||110|
|86||UChicago Argonne LLC||$692.3||80|
|88||Coins ‘N Things Inc.||$672.3||46|
|90||Bahrain Petroleum Co.||$636.1||115|
|92||Sunshine Minting Inc.||$629.3||71|
|93||Chicago Bridge & Iron Co. NV||$626.6||79|
|94||World Fuel Services Corp.||$620.9||53|
|96||Space Exploration Technologies Corp.||$587.4||78|
|98||Brookhaven Science Associates LLC||$581.6||103|
|100||Hensel Phelps Kiewit Joint Venture||$559.8||NR|
|101||Iron Bow Holdings Inc.||$549.6||141|
|102||Washington River Protection Solutions LLC||$527.4||125|
|103||National Security Technologies LLC||$516.9||116|
|104||Canadian Commercial Corp.||$515.1||104|
|106||Tetra Tech Inc.||$492.2||112|
|107||Afognak Native Corp.||$491.0||124|
|108||Caddell Construction Co.||$490.7||92|
|109||Chemonics International Inc.||$488.9||136|
|112||Constellis Holdings LLC||$467.7||183|
|114||Interpublic Group of Companies Inc.||$459.4||120|
|115||Supreme Group BV||$454.8||21|
|117||Johnson Controls Inc.||$451.3||176|
|118||Red River Computer Co.||$445.2||181|
|120||Charles Stark Draper Laboratory Inc.||$440.2||130|
|123||Geo Group Inc.||$429.3||114|
|124||Fermi Research Alliance LLC||$427.8||148|
|126||Ford Motor Co.||$421.3||169|
|127||Al-Raha Group for Technical Services||$420.7||153|
|128||Carahsoft Technology Corp.||$420.3||161|
|129||Corrections Corp. of America||$413.0||109|
|130||South Carolina Research Authority||$412.1||NR|
|131||Airbus Group NV||$407.6||117|
|133||Day & Zimmermann Group Inc.||$401.3||NR|
|134||U.S. Department of Energy||$395.5||87|
|136||Spectrum Group International Inc.||$391.0||97|
|137||Partnership For Supply Chain Management Inc.||$389.2||98|
|138||Chugach Alaska Corp.||$384.8||137|
|139||ICF International Inc.||$382.0||152|
|140||Altegrity Holding Corp.||$379.5||128|
|142||Bristol Bay Native Corp.||$363.2||163|
|144||Hensel Phelps Construction Co.||$362.4||NR|
|145||Redstone Defense Systems||$361.3||171|
|146||Great Lakes Dredge & Dock Corp.||$361.3||100|
|148||World Wide Technology Holding Co.||$356.3||164|
|149||Research Triangle Institute||$353.9||160|
|151||DLT Solutions Inc.||$351.2||177|
|152||General Motors Co.||$344.4||NR|
|153||Alliance for Sustainable Energy LLC||$344.1||154|
|155||Koninklijke Philips NV||$343.5||157|
|156||Martin’s Point Health Care Inc.||$342.6||173|
|158||Tyson Foods Inc.||$334.9||143|
|160||Akal Security Inc.||$332.5||126|
|162||Aegis Defence Services Ltd.||$327.2||195|
|164||Western Refining Inc.||$325.3||NR|
|165||Abu Dhabi National Oil Co.||$321.7||133|
|168||Russian Space Agency||$312.3||175|
|170||Oak Ridge Associated Universities Inc.||$306.8||174|
|171||CH2M-WG Idaho LLC||$306.5||NR|
|172||Kongsberg Gruppen ASA||$301.9||NR|
|175||Management & Training Corp.||$290.8||142|
|176||Washington Closure Hanford LLC||$290.0||184|
|177||Systems Made Simple Inc.||$289.1||NR|
|178||EMCOR Group Inc.||$285.2||190|
|179||QinetiQ Group Plc||$282.7||129|
|180||John Snow Inc.||$281.1||151|
|181||Bollinger Shipyards Inc.||$280.6||199|
|182||Emergent Biosolutions Inc.||$280.4||NR|
|183||Mission Support Alliance LLC||$278.5||NR|
|184||Intuitive Research & Technology Corp.||$276.3||191|
|186||Goodwill Industries International Inc.||$273.7||NR|
|187||Fiat Chrysler Automobiles NV||$273.6||NR|
|189||Abt Associates Inc.||$270.9||187|
|190||Digital Management Inc.||$269.1||NR|
|191||Insight Enterprises Inc.||$268.2||NR|
|192||Aerojet Rocketdyne Holdings Inc.||$267.0||NR|
|193||J&J Maintenance Inc.||$265.8||196|
|195||Raytheon Lockheed Martin Javelin JV||$263.9||NR|
|196||Reed Elsevier Plc||$262.6||NR|
|197||Aerospace Testing Alliance||$260.3||193|
|199||Mission Essential Personnel LLC||$258.3||105|
|200||Neptune Orient Lines Ltd.||$257.8||168|
Note: While AECOM acquired URS Corp. on Oct. 17, 2014, after the end of fiscal 2014, the combined company is listed on the BGOV200.
About the Analysts
Duncan Amos is a quantitative analyst with Bloomberg Government. Previously, he was a quantitative research assistant at the RAND Corporation, where he focused on defense, mobility, finance and international development research. He has a master’s degree in applied economics from Johns Hopkins University, and bachelor’s degrees in political science and economics from Duke University.
Timothy Yeaney is a senior data analyst with Bloomberg Government. Before joining Bloomberg, he spent more than 20 years as vice president of Eagle Eye Publishers, where he developed comprehensive data mining and analytical tools for evaluating federal prime contracts and other spending data. He was the chief architect of the precursor to the usaspending.gov website application and supplied the contracts and grants data for the site during its rollout. Tim received his A.B. from Occidental College.
To contact the analysts: Duncan Amos in Washington at firstname.lastname@example.org; Timothy Yeaney in Washington at email@example.com To contact the director of government sales research: Kevin Brancato at firstname.lastname@example.org; Jodie Morris at email@example.com
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