Highlights from GovWin’s 2022 State and Local Government Contracting Forecast

GovWin’s market experts track the state, local and education (SLED) market on a regular basis, providing the most comprehensive market intelligence in the industry. In our recently-released State and Local Procurement Snapshot for Q4 2021 report, we examined some of the highlights for the government contracting forecast for 2022.

Positioning the State and Local Government Contracting Market in Time

As we noted in a recent report, our 2022 SLED Government Contracting Forecast, the state, local and education market of competitive bids and RFPs is currently in transition between the pandemic-driven lows of 2020, the immediate partial recovery in 2021 and the continued incremental improvements expected for 2022, 2023 and beyond. The lowest point happened in Q2 2020 with a -26% year-over-year dip in bids, after which there has been steady improvement through the months of 2021.

This transition is happening at a particularly dynamic time in the US economy, from high recent inflation and strong growth in the first half of 2021 to marked deceleration, based on economists’ best estimates of ‘21, ‘22 and ‘23 GDP slowing from around 6% to less than 3%. Q3 ‘21 GDP only came in at 2%, well below expectations – which provides a backdrop to the “extended recovery” forecast that is based on actual data through Q3. A recession is not expected but with all the unknowns some signs had emerged by October ‘21 that an even slower outcome is quite possible. To the extent conditions deteriorate, it would obviously have negative implications for the path of recovery in SLED bid volumes. On the other hand, conditions and confidence could also recover faster. This uncertainty led us to feature alternate forecast scenarios alongside the baseline version.

Applying the Forecasting Model

Our 2022 SLED Government Contracting Forecast takes actual data through Q3 ‘21, estimates Q4 and uses a sophisticated model featuring exponential smoothing to determine the most statistically likely path for the market to take, along with the most likely path for each of its 12 industries.

Each industry is trended separately based on its unique history and patterns and the overall market is then estimated using a “bottom-up” methodology. GovWin’s group of subject matter experts provide additional context and insights into these sectors to help businesses with their marketing and planning. We also create two alternate “what if?” scenarios of higher and lower growth for additional perspective and provide the detailed industry breakouts in the Appendix to help companies anticipate the range of possible outcomes. Those two alternate scenarios are viewable in the full version of the State and Local Procurement Snapshot for Q4 2021 report.

Forecast Model Projects a Multi-Year Extended Recovery

After losing 15% of total bid volume in 2020 and staging a partial rebound of 7% in 2021, the forecast expects 3% growth in 2022 and another 2% in 2023. Since completing the forecast and noting actuals for Q4 ‘21 we now show that the entire year was slightly better, reaching over 439K compared to our estimate here of 437K with a +7.5% growth rate instead of +6.8%.

The model anticipates a flattening out of the recovery, supporting a new path that looks ahead past 2023 for full normalization. In other words, we now don’t think even 2023 will feel like a completely “normal year” in terms of confidence in the future and preferences for how to buy things and use formal bids and RFPs.

In last year’s forecast report we had expected a higher rate of increase in state and local government bids for 2021 based on our initial evaluation of a sharp downturn but rapid “V-Shaped” rebound. This was thought to be more of a temporary pandemic crisis without any variants emerging, vaccines broadly accepted and prices stable. It would be quickly brought under control with confidence supported by the unprecedented stimulus. It was expected (at least in the health sphere and the economy) to be more of a one-year reset and return rather than a multi-year often sideways recovery.

While total spending is driven by available dollars, formal bids are more related to confidence and predictability in how that government is expected to trend in the next 12-18 months. When the chance of a recession drops to 0%, for example, that may not affect total spending immediately, but boost the number of formal bids because it’s a chance for a SLED entity to “get ahead” and start the multi-month process of buying custom and discretionary things they had been holding back on due to the uncertainty.

While the economic rebound has been impressive, Q3 GDP was minimal and with the evolving pandemic response and questions about inflation, uncertainty has remained elevated. To understand the extended recovery period, one can look at factors such as new COVID variants and public resistance to vaccines, higher inflation, shortages and labor market issues, and the prospect of tapering in bond buying and rate hikes by the Federal Reserve to fight inflation – which can potentially derail the economic recovery. In the political realm, there has been uncertainty (particularly in Q1 ‘21) around elections, the debt ceiling standoff, federal funding and stimulus. It shouldn’t come as a surprise that that the delays and lingering uncertainty of this environment have affected the willingness of officials to return quickly to pre-pandemic formal bids. Even with strong economic growth in 2021, they have chosen to maintain a recessionary-type mentality favoring routine items and delaying some custom, longer-term or discretionary projects. They issued more bids than during the shutdowns of 2020 but still much less than a normal year.

Additional Forecast Detail Included in Procurement Snapshot for Q4 2021

Our State and Local Procurement Snapshot for Q4 2021 provides two different alternate outcomes for this market, based on conditions either getting worse or improving at a faster clip in the coming months. We included these alternate forecasts, as well as specific projections by industry, in the full version of our Procurement Snapshot for Q4 2021.

Looking for more analysis of the current state of SLED government contracting? Simply click the link below to download the report.