Defense spends 6 in 10 contract dollars

Defense spends 6 in 10 contract dollars

Nearly half of revenues for IT contractors came from DOD in 1999, survey says


The Defense Department is the favorite customer of information technology contractors, according to a Grant Thornton LLP government contractor survey released in May.

DOD was favored by more than 100 contractors surveyed by the international accounting, tax and management consulting firm in Chicago.

A little more than 47 percent of revenues earned by the companies surveyed came from DOD, up from 41.2 percent.

Surveys were sent to businesses in the second quarter of 2000; statistics represent information about fiscal 1999.

Billions in awards

DOD hands out about 60 percent of all federal contracting dollars, department spokesman Glenn Flood said. In fiscal 2000, DOD awarded $133 billion in prime contracts, he said, and many of the supplies and services are the same as or similar to those in the commercial market.

'Contractors need not tailor to meet DOD's needs,' Flood said, although specific military requirements are large enough that contractors find them worthwhile.

Al Pesachowitz
Al Pesachowitz sees DOD as the leader in outsourcing because of continued pressure on its budget.
The survey found that all industry groups reported greater revenues from DOD over the past year. In the information services sector, the revenue rose from 33 percent to 42 percent.
Telecommunications companies generated more than half of their total revenue from DOD.

'In the last few years, the relative percentage of services we buy has increased to 21 percent,' Flood said. 'We see that number increasing, in part reflecting the service-based economy and in part because DOD is outsourcing noncore services.'

Noncore services are those not directly related to warfighting, such as food and custodial services, some medical functions, and building and housing maintenance.

Chris Mattingly, director of government contracts and business services for Grant Thornton, said legislation enacted eight years ago has significantly affected the growth and authority of federal contractors, especially those working for DOD.

The 1994 Federal Acquisition Streamlining Act and the Federal Acquisition Regulation forced agencies to look for the best values in procurement, not the lowest prices, he said.

'That created some initiative and started to empower federal contracting officers with the ability to make judgments,' Mattingly said.

'They modified the evaluation process, and they began looking at past performance. That started to give the contracting officers more confidence in making good calls,' he said.

Alvin Pesachowitz, director of the civilian consulting group at Grant Thornton, said a push toward firm, fixed-price contracts and performance-based work statements leads agencies to opt for contractors instead of their own employees.

'The federal government will have to look at whether certain noninherently governmental or commercial services being done by federal employees should be contracted out, based on cost analysis,' said Pesachowitz, who was the Environmental Protection Agency's first chief information officer.

The Office of Management and Budget's Circular A-76 stated that the federal government should not compete with private industry and should outsource work that can be done more efficiently and at lower cost by industry.

'DOD is clearly ahead [in outsourcing] and has been for some time because of pressure on their budgets over the last few years,' Pesachowitz said.


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