Effect of the Stimulus on Government Contracting and Proposal Activity

Written by Russell Smith

The present situation for Government contractors reminds me of the introduction to Charles Dickens’ famous novel, A Tale of Two Cities: “It was the best of times, and it was the worst of times.“ Never during my 30 years in Government Programs has there been anything like it. At the same time, we have:

A change of administration, which always slows down federal business for several months;
The worst recession in my life; and
Stimulus programs that will take Government spending to dizzying heights.

The purpose of this article is to address the question: What effect will the Stimulus program have on opportunities and proposal activity in Government contractor companies? The primary focus of this piece is on the technology aspects of the Stimulus program. However, it attempts to describe the scope of the Stimulus program in general at the federal, state, and local levels; the general character of the program; and both opportunities and caveats for interested contractor firms.

The total level of spending projected will effectively give us a “double budget” for 2009. This includes $1.2 trillion in discretionary federal funds for 2009 (budget FY09) along with an equal amount for the combined Troubled Asset Recovery Program (TARP) and Economic Stimulus Plan ($787 B).

Here is the interesting part for contractors: $308 B in discretionary spending initiatives (new programs).

Opportunities needing contractor support primarily include construction, technology, research, energy, health, IT and transportation.

The top three areas receiving stimulus funds are:

Education
Transportation
Energy (R&D will be included for “Green Energy” solutions)

Other agencies receiving significant funds include Agriculture, HHS, HUD, Commerce, EPA, GSA, and Labor. All of this funding includes both infrastructure and technology components.

There are $200 B in state and local grants for programs aimed at providing:

Efficiency
Cost savings
Modernization
Transportation (including technology components)

The requirements in the Stimulus legislation for speed are a challenge for both the Government agencies and the contractors. Projects that can be completed quickly have priority over those that can be completed later. This is due to the “use it or lose it” provision in the legislation. Specifically, the law requires that the $300 B in grant funds be expended according to the following timeline:

2009 $34.8 B
2010 $110.7 B
2011 $76.3 B

And the requirements to spend the remaining Stimulus funds taper off each year from 2012 through 2016.

Spending requirements are aggressive. Agencies will be challenged to handle the contracting workload for the Stimulus programs, while also processing the programs to expend the normally appropriated funds.

Several provisions of the Stimulus legislation are highly significant to contractors:

Competitive contracts will be used “to maximize extent” possible.
Federal acquisitions regulations (FAR) will be used.
Contractors will be REQUIRED to use US made products unless it is over 25% more expensive to produce the product in the US.
The reporting / auditing requirements are more extensive than in the usual contracts.

There are important implications in the Stimulus legislation for contractors:

With Government contracting offices under fierce workload strains, contractors need to avoid the pressure to accept poorly scoped, long-term, firm fixed price projects.
8(a) businesses need to be aware of the fact that winning a Stimulus project could propel them out of 8(a) size status and to plan for the fact that this money will disappear.
Contractors need to be aware that job creation is an important key to winning grant funds; AND the best winning position is to create jobs that can be SUSTAINED after Stimulus funding goes away.
There are opportunities now, and companies need to act quickly.

$60 B in Stimulus dollars are going to technology, facilities modernization / construction, health care, and homeland security. This includes the following:

Technology

IT Modernization • Data processing
Information Security
Information Management
Data Warehousing
Facilities Modernization / Construction
- Constructing building facilities
- Networking
- Energy modernization & Usage Monitoring
- Security (physical and technology equipment)

Healthcare

Electronic Health records database
- Incentives starting 1/2010 for doctors to use system
- Penalties will start 2015 for all doctors not on the system
Information systems
Security (physical and technology equipment)
Records Management

Homeland Security

Checkpoint / Border security
Explosive detection systems
Communication equipment
Surveillance and monitoring

The crush in the contracting workload on Government agencies points to an efficient way for contractors to win business, while helping their Government counterparts out. If the contractor firm has an EXISTING CONTRACT that can be EXTENDED or MODIFIED to help achieve Stimulus goals, then this is a win – win situation. Because it helps the agency achieve their Stimulus program goals, while minimizing the effort required to put in place a contract to do it.

Since a majority of the discretionary Stimulus funds will be spent at the state and local level, most contractors who want to capture Stimulus contracts will be working at the state and local level. The top three spending areas, all with technology sections, are as follows:

Education
Transportation
Social Services

Some of the technology efforts in the Transportation market include:

$8.4 B in Intelligent highway solutions
Mass Transit
- Safety and security
- Repair and Energy Efficiency

There are many important implications regarding these state and local programs for contractor firms: Portions of the spending that will go to both existing and new technology contracts. The timeline is very aggressive. States WILL need assistance in Grant/Financial management. And every state has a “Czar” that is appointed by the Governor and will be in charge of dispersing and managing stimulus funds.

Contractors need to look carefully at their potential projects and see if there is a possibility that older projects can be brought off the shelf to accommodate the speed and aggressiveness in the recovery act. Past performance is still key. There will be many technology projects that “piggyback” on projects nominally in other areas. There is a desire to modernize almost every type of project, and this will include some sort of technology. Here are some key factors:

Healthcare will be the most intensive place for technology possibilities.
The focus right now will be on existing funding sources;
- Present a “complete” solution;
Which will include a grant/program management solution.
Expect tighter requirements since there will be considerable oversight (“Obey the rules”).
Don’t wait – positioning yourself well now will help you for any stimulus packages as well for any follow-up work.
GSA is the lead on the energy efficiency (“Green energy”) stimulus money;
- Mostly R&D right now.
Existing / Proposed programs may slip, but it will depend on the specific work the program performs and if it is “time sensitive.”

There two most important factors to the $200 B in state funding:

Creating jobs
Decreasing debt (this could involve technology to make programs more efficient)

New opportunity areas include:

Health IT

Green Jobs / Smart Grid

All building must be “green”
70 fold increase in funds for state energy
20 fold increase in funds for weatherization
R&D will go mainly through University and existing non Profits

Broadband

$7 B in spending
In 35 days there will be a “rural broadband” plan that will feed into a national broadband plan that will come later.
Already we have heard that some of the “big players” may bow out due their feeling there are too many strings attached.
Rules for the spending will come out between now and May 1, 2009.
This program directly effects the Health IT programs for various reasons, one being the cohesion between broadband capabilities and the use of the e-prescriptions program.

The Stimulus program offers a once in a lifetime opportunity for contractors to advance their firms while helping to achieve national recovery goals. If you are going to follow the money, you will need to pursue more state vehicles, because there will be few federal vehicles for the stimulus funds. Finally, there are these considerations relating to job creation:

Contractors need to keep in mind that all stimulus funds disappear in 24 months.
Governors will be looking for long-term job sustainability outside of the stimulus funds when awarding.
States will use existing local law as far as awarding to local companies and having local workers.
Nowhere in the stimulus package is there regulation for having legal documented workers; state and local laws will apply to this as well.

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