Peter Adam

This article is written to predict what effect the Trump presidency will have on proposal / procurement activity.  The anticipated re-orientation of procurement provides both an opportunity and a threat to government contractors.  With higher spending, there will be a larger pie to be sliced.  However, as the swamp is drained, some contractors may be swept into the tank.

The Trump administration marks the most dramatic political shift since President Reagan.  Based on our experience in six administration changes, here is our take on what lies immediately ahead.   For a month or two, RFP releases will continue to move to the right.  Then —- there will be a torrent of RFPs dropping in spring and early summer.

1.Information Technology

Our research indicates the IT sector will be increasingly competitive going forward — for each IT contract that expired in 2016, six competitors submitted bids attempting to oust the incumbent.  2017 is likely to be even tougher, with seven challengers for every IT services rebid.

That said, the incoming administration is likely to continue spending heavily on IT, if only to make an expected-to-be-reduced Federal Government workforce more productive on a per-bureaucrat basis.

We’ve analyzed 27 $1B plus contracts whose RFPs are scheduled to drop over the next few months.  Eleven of these are for IT hardware, software, related IT service support, R&D and/or advanced IT-driven specialized communications equipment.  Taken together, they top $30B.

These anticipated IT contracts include $10B in IT hardware for FEMA, $4.7B in ruggedized IT hardware and commo equipment for the Army, $1.4B in IT systems and services for the Department of State, $1.5B in surveillance equipment for DHS, $1.1B in Air Traffic Control System components for the DOT/FAA, and $1.1B in advanced computer systems for NASA, etc.

And that’s just part of the IT contracting story, going forward.  Many of the non-IT upcoming contracts will require program management and logistics support to include provision of IT-related activities – e.g. help desk management, systems integration, modification, installation and maintenance, etc.

Most of the expected IT spending detailed above is DHS-/DOD-related, and unlikely to be cut, being that the incoming administration seems serious about beefing up immigration enforcement, cyber capabilities and cyber security.

Cuts may come, however, in the Department of Health and Human Services, particularly in the IT and other types of support for the Affordable Care Act, Obamacare, programs.

The big outfits, Booz, ManTech, CSRA, SAIC, Deloitte and PricewaterhouseCoopers, etc. are likely to provide the lion’s share of the aforementioned IT services contracts.  However, virtually all of these contracts include serious small business / social business set asides.

How SBs, WOBs, SDVOSBs, HUBZone, Native American- and Minority firms competing in the US Government IT space will fare overall going forward is a BIG question mark.   Increased set Asides and enhanced (or diminished?) Socio-economic requirements may, or may not be baked into the Trump Administration contracting cake.  On the one hand, President Trump the populist has voiced concern for the little guy.  On the other hand, his cabinet and staff will be chock full of major corporate and Wall Street execs. How will this play out?  We’ll all have to sit tight and wait and see.

In any case, the firms that will end up on top of the IT pile will be those who are agile and perceptive enough to adjust to evolving opportunities in this area as the Trump administration executes its game plan.  This especially means access to the right subs, partners, consultants, and SMEs needed to capture the opportunities that arise.

2. A Boost in Defense Spending

The anticipated increase in the Pentagon budget will likely be accomplished along the lines detailed in a report, “Restoring America’s Power,” issued by the Chairman of the Senate Armed Services Committee, Senator John McCain — (http://www.mccain.senate.gov/public/_cache/files/25bff0ec-481e-466a-843f-68ba5619e6d8/restoring-american-power-7.pdf).

Sen. McCain calls for a $430-Billion increase in the Pentagon’s budget over a 5-Year period.  This will fund the building of 69 new ships (vs. 41 planned by the prior administration).  Sen. McCain also calls for stepped up purchases of F-35 Fighter Jets, increased spending on drone development, and production as well as the enhancing of active protective systems (APS) for Army and Marine Corps vehicles.  As America restores its military power, there will be undoubtedly more spending across the board for IT, telecom, security, intel, “ruggedization”, etc. as well.  President Trump intends to GET VERY TOUGH with ISIS. Don’t expect pennies to be pinched.

In addition, approximately $210 billion worth of contracts funded by Navy, Army and Air Force are set to expire during calendar year 2017. Nearly half the value of these contracts is expected to be awarded to 100 vendors.  And there will be SB / socio economic set asides in nearly all of these programs.

3. Healthcare Front and Center

As his first act in office following the inauguration, President Trump signed a one-page executive order initiating the unravelling of the ACA (Obamacare). This was largely a symbolic gesture.  But it shows the new administration’s commitment to enacting a replacement plan.  The new plan could involve a more aggressive approach to pricing pharmaceuticals, medications and medical devices, etc.

OCI recently studied the lineup of RFPs scheduled to drop over the first quarter of this year.  We looked at 27 solicitations, $1B and up.  Most of these were IDIQs; most were Full and Open, with some Small Business Set Asides.  Out of an estimated total of $170B in value, medical-related activities accounted for more than $110B – or about 65 percent.

The disproportionate share accounted for by medical isn’t surprising. The bill the US government pays for prescription drugs through Medicare, Medicaid, the VA and TRICARE systems is enormous; it’s forecast to reach $1 + TRILLION over the next decade. Negotiating a better pill deal is likely to test the most seasoned dealmaker. It’s going to be a bitter pill for big Pharma to swallow.  Contractors in the medical and specifically the pharma and medical service delivery fields are likely to face an increase in price sensitivity, going forward.

4. Infrastructure – Rebuilding America – President Trump has proposed a $1-Trillion Infrastructure development plan.

America’s need to rebuild its infrastructure isn’t new news.  Every four years the American Society of Civil Engineers (ASCE) issues an infrastructure report card (http://www.infrastructurereportcard.org). The most recent assessment:  D+.  To bring our infrastructure up to snuff by 2020 carries a price tag of $3.6 TRILLION.

The $1 Trillion infrastructure plan issued by President Trump during the campaign would be a sizable step along the route mapped by the ASCE. But According to Barclay’s Bank Research, the top 10 US infrastructure projects now on the drawing boards will cost a far more modest sum, $132.6B.

Conclusion

The new administration represents a political departure of epic proportion. Opportunities will abound in the areas of IT, defense, health care, and infrastructure.  Contractors will have to adjust to the new administration’s evolving priorities, though, or fold their tents and fade away.