Federal Contract Spending Trends in Five Charts

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IN THIS ARTICLE

1. Civilian agency spending

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2. Defense spending

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3. Best-in-class contract record

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4. Communications and IT

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5. Professional services

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1. Civilian agency spending: 2021 totals dipped, but still above preceding levels

The government’s response to the Covid-19 pandemic caused an unusual spike in civilian spending in fiscal 2020, largely due to spending in medical research and development, pharmaceutical production and distribution, and medical equipment and supplies. Though civilian spending in 2021 dipped below 2020 totals, it was still the second-highest civilian total in the last 20 years – mostly thanks to non-covid projects mitigating the drop in pandemic-related spending.

Continued investments in IT hardware and software, cloud migration, telecommunications, client services, and network security remained strong. Pandemic response spenders like the departments of Health and Human Services, Agriculture, Veterans Affairs, and Homeland Security contributed to the overall drop, while the Department of Treasury’s 45% growth bolstered civilian spending.

Subscribers can read more related analysis from Bloomberg Government.

Big Pandemic Spenders Lead Overall FY2021 Civilian Spend Drop

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2. Defense spending: After fourth-quarter fizzle, finished below previous year

Data show the Defense Department spent $29 billion less in the fourth quarter of fiscal 2021 than the previous year, a huge part of the $28.4 billion net year-over-year decline across the government. The quarter’s share of total annual procurement also fell—to a five-year low of 27.5%, 3.5 percentage points below its annual average for fiscal 2017–21, according to Bloomberg Government data.

FY21 Q4 Spending Drops Year-Over-Year

A $12 billion year-over-year increase in Pentagon purchases of Covid-related drugs and biologicals in the fourth quarter couldn’t offset spending decreases in key defense markets such as research and development (-$9.8 billion, -55%), aircraft manufacturing (-$6.7 billion, -65%) and construction and renovation (-5.9 billion, -39%). A 54% Q4 drop in F-35 Joint Strike Fighter spending was part of the annual decline in spending for the aircraft.

Subscribers can read more related analysis from Bloomberg Government.

3. Best-in-class contracts reach record high

Federal agencies signaled a continued commitment to best-in-class contracts by upping their fiscal 2021 BIC spending to a record $50.9 billion amid the most significant year-over-year overall spending downturn in a decade.

BICs’ procurement footprint is growing, too. In fiscal 2017, best-in-class contracts amounted to $26.8 billion and 5.2% of total spending. BIC, or “Tier 3,” awards now account for 8.2% of all contract dollars, according to data from the General Services Administration and Bloomberg Government.

Pentagon Drives BIC Spending to All-Time High in FY2021

Purchases funded by the Pentagon drove the 12.5% year-over-year overall BIC increase in fiscal 2021 and rose 15% despite a $65 billion drop in overall agency spending. This upward trend resulted in defense BIC obligations more than doubling from fiscal 2017 to fiscal 2021. BIC growth at the Defense Logistics Agency ($8.6 billion, +188%) and the Air Force ($6.2 billion, +1.2%) compensated for a combined $2.1 billion drop by the Office of the Secretary, the Army, and the Navy.

Civilian agency movers included the departments of Veterans Affairs ($4.1 billion, +10.3%), Homeland Security ($4.1 billion, +25.6%), and Health and Human Services ($3.9 billion, +9.7%). Civilian BIC spending hit a record $24.1 billion in fiscal 2021.

Subscribers can read more related analysis from Bloomberg Government.

4. Communications and IT industry contracts on the rise

Companies looking to spot procurement supported by the bipartisan infrastructure law in the communications and IT critical infrastructure sector can use contract spending data from the last several fiscal years as one signpost. Contract types and vehicles already common in this sector could be likely tools for program offices seeking expedited purchasing for infrastructure projects while the government is operating under a continuing resolution.

Communications and IT critical infrastructure federal contract spending grew 43% from fiscal 2017 to a high of $64.8 billion in fiscal 2021, primarily on the strength of increased spending by civilian agencies.

Comms & IT ‘Critical Infrastructure’ Steady Growth Hits $65.1B

Examples of projects funded by the bipartisan infrastructure law include the Federal Communications Commission’s Affordable Connectivity Fund and the Department of Homeland Security’s Cybersecurity Response and Recovery initiative.

Subscribers can read more related analysis from Bloomberg Government.

5. Professional services market: Steady growth driven by management consulting

The professional services market has increased every year since fiscal 2016, hitting $97.6 billion in fiscal 2021. More than half of the $7 billion bump came from the perennial heavyweight subcategory of management and advisory services. That field is filled with major contractors active in both civilian and defense markets such as Booz Allen Hamilton Holding Corp., General Dynamics Corp., and Deloitte Touche Tohmatsu Ltd. There were wide variances in contract spending among the subcategories, as defined by the General Services Administration, with management-related work doing the best.

Management Programs Outpace Other Professional Services Types