The top 20 IT contracts awarded by the federal government in 2007 will be worth $120 million, or just half the value of similar contracts awarded in 2006, suggests a new study by consulting firm Input.
The average ceiling value, the maximum possible value of the contract over its life, will also drop in half, from $12 billion to $6 billion, for the top 20 contracts.
But the news isn’t all bad, explained report author Ashlea Higgs.
One of those contracts, put out for bid by the General Services Administration (GSA), is for professional IT services and is worth $50 billion over ten years, the single largest IT contract vehicle in history.
The federal government uses contract vehicles to pre-select a number of vendors who are then allowed to bid on individual projects as they become available.
The highest-spending government agencies, which include the GSA, the Army and the Department of Homeland Security, have said that most of their spending in 2007 will go through previously-negotiated contract vehicles.
This is good news for incumbents, who will have less to fear from new competitors.
“Contractors on contract from last year know most of the spending will go through their existing contracts versus new ones,” Higgs told internetnews.com.
This explains why vendors will typically spend between half of one percent and 3 percent of the total contract value preparing their bids through a process that typically lasts more than one year.
A lot of that money goes to proving that if they win the contract, “they can hit the ground running,” said Higgs.
Vendors also spend a lot of time and effort teaming with appropriate sub-contractors in order to fill gaps in their own offerings.
Winning the bids is critical, Higgs noted, because losing a top-20 opportunity can lock a vendor out of an agency for the next three to five years.
Higgs also noted that hundreds of new vendors try to break into the $65 billion federal procurement market every year.
Most vendors make their initial forays into the federal government market as sub-contractors.
Higgs said smaller vendors also benefit from set-asides for small and minority-owned businesses.
For instance, the GSA has set aside an IT services budget for small businesses worth $15 billion over the ten-year life of the contract.
According to the report, it is the largest small business set-aside in history.
Higgs said that, “there is absolutely more room for new entrants,” despite the fact that most monies will be going to incumbents.
Vendors can find requests for proposals from federal agencies here.
