President’s Budget for FY 2016 Would Boost Contract Spending 2%
Budget request departs from sequestration budget caps and sets stage for contentious 2016 appropriations process
HERNDON, Va. – April 8, 2015 – According to a new report from Deltek, the President’s FY 2016 budget request sets the groundwork for growth in contract spending. The request reflects an increase in federal contractor-addressable spending from $646 billion in FY 2014 to $660 billion in FY 2016. Nearly every market segment shows the potential for growth, which reflects the Obama administration’s desire to reinvest savings generated by a declining budget deficit.
The Equipment market (excluding Aerospace and Defense-related investments) shows the most growth from $30.7 billion in FY 2014 to a potential $49.4 billion should the FY 2016 budget pass Congress. Most notably, the administration is setting the stage for stability in Aerospace & Defense (A&D) spending, which has suffered under sequestration and the decrease in war funding. Although the potential $137.1 billion in A&D spending for FY 2016 is only slightly higher than the $134 billion noted for FY 2014, it represents a 12% increase over the $122.4 billion in estimated FY 2015 spending. Spending in the Professional Services and Operations and Maintenance (O&M) Services segments also reflect modest increases at $67.1 billion and $93.5 billion respectively.
Information Technology (IT) spending over the past several budget cycles has not been as volatile as other segments. Deltek’s preliminary analysis for contractor-addressable spending on IT products and services shows a modest 1.4% CAGR, increasing from $101.5 billion to $104.5 billion from FY 2014-2016.
Deltek’s report “FY 2016 Federal Budget Request: Challenges and Opportunities,” provides unmatched insight into contractor-addressable budgets across 10 major market segments, including Professional Services, Aerospace and Defense (A&D), Architecture, Engineering and Construction (AEC), and Information Technology (IT) – helping contractors identify areas of budget growth and contraction so they can better plan and execute their business development strategies.
Although this budget represents hope for recovery from the effects of sequestration, it’s unlikely that all of the proposed growth will make it through the appropriations phase. “This budget should be viewed with cautious optimism,” said Deniece Peterson, Director of Federal Industry Analysis at Deltek. “Although Congress does seem ready to replace sequestration, it’s not clear that this proposal will be the accepted alternative in its entirety. However, it is a good indicator of agencies’ priorities and strategic direction.”
Despite the potential for increasing budgets, the associated procurement will occur under a high level of scrutiny. Accessing opportunities will still present challenges to contractors as the administration continues to reform the acquisition process.
Administration continues to push for more IT efficiency
The FY 2016 budget puts more pressure on agencies to make progress in many of the cross-agency reform initiatives, such as data center consolidation, digital services, shared services, category management and IT portfolio management. Part of the strategy is to push for more rigorous application of program reviews under the PortfolioStat initiative, improve performance metrics and increase IT investment reporting and transparency.
Cybersecurity continues to be a priority, with proposed funding of $14 billion to expand the use of Continuous Diagnostics and Mitigation (CDM), improve oversight and modernize Federal Information Security Management Act (FISMA) reporting.
Despite proposed spending levels for FY 2016, agencies will be under increasing pressure to justify investment priorities and improve program management.
“As we approach the end of the second term of the Obama Administration, we see a recurring pattern of OMB pushing hard to show meaningful progress on policy initiatives. The IT policy initiatives are no exception,” said Peterson.
Focus on efficiency will be critical
“Whether agencies receive the funding they are requesting or not, their mission objectives continue to evolve in scope and complexity,” said John Slye, Analyst at Deltek. “Funding will still be directed to ‘must have’ investments and shoring up as many areas hard hit by sequestration as possible.”
Contractors that have aligned their offerings to support mission-critical needs and/or help agencies streamline operations have reasons to remain optimistic. “Even with possibly increasing budgets, agencies are being pressured to improve cost efficiency and program effectiveness. Contractors that can help agencies stretch their budget dollars will have a market advantage,” said Slye.
For more information on GovWin IQ and this report, visit the “FY 2016 Federal Budget Request: Challenges and Opportunities” page on Deltek.com/GovWin, or download the free report summary now. The report is free to subscribers of GovWin’s Federal Industry Analysis program.
About GovWin IQ
Deltek’s GovWin IQ provides the market intelligence tools and analysis government contractors need to gain a competitive advantage and be a formidable player in the federal market. Backed by a team of government research and analysis experts, GovWin IQ provides the most powerful, comprehensive, and timely lead generation and business intelligence solutions available. More than $1.8 trillion opportunities are tracked every year – a number no other provider can match.
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