 This is always such an exciting time for us at the Center for Strategic and International Studies because we love to talk about contract data and what they tell us. I want to welcome those of you here in the room. I'm David Burto. I'm the Director of the Defense Industrial Initiatives Group and a Senior Vice President here at CSIS. With me is Greg Sanders, who is our resident fellow for all of our data analysis and data management work. Greg has been involved in this project since its inception. I also want to welcome our viewers on the web. If you're on the web, you can access the slides that we're going to use here today. You won't see the slides on the screen, but we'll tell you the slide number and you can go to them if you're looking on the website with the telecast or the webcast. You can see under files up in the top right-hand corner are the slides. You can also, if you're on the web, access the report, which everybody in the room has with them. We're referring to the page numbers in the report as well as the chart numbers for those where the chart is actually in the report as well. And you can download the report also on the upper right under publications. It'll take you a couple of clicks to get through to the download, but you can get the report as well. I would also ask those of you in the room to silence your phones. If you're on the web, you can do whatever you want with your phones, I suppose. There are a lot of folks that we owe gratitude and thanks for in bringing this effort together. The analysis we do on the services industrial base is really pretty complex and takes a long time. I want to thank particularly Jesse Elman and Rhys McCormick who are the lead analysts, especially in the in-game here. Ryan Crotty who's essential to bringing us to success at the end. Andy Dodzitan who's been involved in this project for several cycles now. I want to give some additional thanks to Joshua Archer. Adam Parker who were involved especially on our projections. This is the first time we've started to do projections which is a risky territory for us. We also have a few departed research assistants and associates who are involved in this. I suspect they're all more happily doing less data work now, but Snehan, Raghavan, Luke Heseltan, and Tamayo Nishimori and all the folks who helped us put on the event here this morning, Nicole Darden, Sam Brothers, Alex Stevenson, Adam Schwartzman, and TJ Cipolletti. But in particular, I want to dedicate this report to our friend and colleague, our mentor, and our guiding light in this field, the late Guy Benari. Guy was the Deputy Director of DIG for years. He predated even Greg in terms of work on these projects. We miss him every day, but we especially miss him when we're involved in what he loved and did so well, which is to find the links between data and analysis and policy and outcomes. And so Guy, this one really is for you. Usually this is where I say next chart, but I actually have the responsibility for doing that myself, so let me see if I know how to do that. Hey, hey, there's the next chart. Greg Sanders will walk us through the methodological points that actually affect our analysis. There's a lot in our methodology. You can read a lot more in the details, both in the report itself, pages one and two, and the appendix. But in many cases, each chart has some additional methodological points in the analysis that are relevant to that particular chart. Greg, do you want to add a few highlights? So the main point to remember is that these are prime contracts. Subcontracts are tracked, but only a small portion of them still, and that data is relatively recent only. Reporting requirements of 2,500 are higher. Several departments are not included, including the Postal Service, CIA, NSA, and similarly classified contracts are not obligated to be reported, and we take that to mean most of them are not. Contract classifications will sometimes vary between how the government reports it and how companies report it and other vendors. Some of it will just be different classification schemes. Some of it will be the subcontract issue. All dollars are 2012 constant, and finally I should note, this data includes supplemental ones and OCOs. Those are not separately categorized under our FPDS. Methodologically, we always make a number of small changes. We'll speak to them if they're appropriate. The biggest ones were in competition, where we're now in line with DoD reporting. I should note also that the Federal Procurement Data System continually improves and updates its past data. Each year, one of the things we look at is how much money did we spend on Y2K, and each year that amount goes down. Only by small amounts, but you would think that somewhere along the way it would stabilize. Let's look at the overall picture. This chart, this is on, this is chart three, if you're following along the charts, it's on page five in your report. This is really the total context in which we look at Federal Services contracts, if you will. And the chart is pretty complicated, so let me walk you through it. Each bar is actually what we call total discretionary government spending, and it's essentially composed of three elements. The green in the chart at the top is outlays, and these federal government outlays not under contract. So this would typically be salaries and grants and other discretionary funded programs. The red in the middle is federal contract spending on products, and the blue at the bottom is federal contract spending on services. I should note one other methodological point. In the Federal Procurement Data System, research and development is categorized as a service. And so in this report, we include R&D as services. We break it out separately. Some of the specific reports we do, for instance, for the Defense Department or the Department of Homeland Security, we break out R&D separately from services because we view R&D, particularly in hardware focused agencies, as an investment account more than as a service contract, and so we break those out separately. But for this report, R&D is included in services, if you will. The non-contract outlays is actual outlays, and so you can't track directly from these totals to the amount appropriated for that year. Contracts is contracts' obligations, so in services much of that money will be current year appropriations, but some of that money will be prior year unobligated balances, or in the case of overseas contingency operations, money that could come from almost any previous year. And so this is our methodology for calculating a total from which we look at the percentage, and so it's outlays, not on contracts, and obligations under contracts. It's pretty unique to CSIS, but it tracks pretty closely with appropriated funds records within a matter of only a fraction of a percent, if you will. So total federal spending, as defined in the chart, is down. You can see that the peak was FY10, that's the tallest bar here, and it's down about from $1.4 billion in FY12 dollars in 2010 to about $1.3 billion in FY11, so FY12, so that's a slight decline, that's up by the way from a base of $800 billion back in FY2000, in constant dollars. So it went up from $800 billion to $1.4 billion down to $1.3 in FY12. We don't have FY13 data yet, obviously there's still a month left in this fiscal year, and it lags, but we'll be reporting out as quickly as we can on FY13. What about the services contracts portion of this? Here again, it's also down in real-dollar terms from $356 billion in FY09, $351 billion in 2010, down to $304 billion, basically, or $308 billion in 2012. In percentage, it's also down as a percent of total federal spending. Services contracts are down from 27% in 2009 to 24% in 2012, and as a percent of contract obligations, services contracts is also down. In other words, service contracts have been declining faster than contracts for products. Services contracts were 62% of total federal contract dollars in 2009, down to 60% in 2012. Now, all of this predates sequestration, so the data don't yet show the impact in FY13. There are two stories in that decline, though, between the peak in 2010 and the decline in 2012. The first is a reduction in stimulus, the American Recovery and Reinvestment Act, which was really responsible for a good bit of the increase in 2009 and 2010 across the federal government. Most of that reduction, though, took place between 2010 and 2011, because many of those contracts were finished by the end of fiscal year 2011. The cuts between 2011 and 2012 are really driven by spending cuts that have been coming out of the U.S. Congress. Still, in the long haul, contracts have gone up more over this entire period from 2000 to 2012 than total federal spending has. So contract dollars have been increased more. In the last three years, they've been decreasing more. But what does the future hold? In previous reports, we did not undertake to project future contract dollars, but this year we did. And in part, it was because we believe that the story told in this report is not the end of the story. That, in fact, the impact from FY13 cuts under sequestration are only begun to be hinted at here. And, of course, there's the real questions of what happens in 2014 and 2015. So here we project, on the right-hand side, both for overall federal spending at the top and for services contracts with the blue line that's near the bottom there, what could happen beyond 2013, 2014, and into 2015. 2013, we've got a pretty clear projection because we know the sequestration hit on March 1st, and we reflect that here. And so our projections based just on the trends and the percentages of total federal spending is that services contracts will decline measurably further in FY13. The question of what happens in 2014 and 2015 is entirely a question of whether or not the Congress appropriates funds and modifies the Budget Control Act so that spending would be at higher levels or whether, in fact, we operate either in a continuing resolution or an appropriation that's consistent with the Budget Control Act. So the higher number, the higher line of the projections would be in the event of a modification to the Budget Control Act and appropriations at a level with the House Incentive Budget Resolutions and the President's budget. The lower dotted lines, both for federal spending and for services contracts, reflects what happens if you actually comply with the Budget Control Act. Those of you who've been to our other events on the budget know that most of us who are involved in this here at CSIS see very little opportunity for the votes to be there to not have the spending come down to the Budget Control Act level for 2014 and for 2015. And so these projections take that into account. Greg, do you want to comment at all on the methodology here? So we've looked at a couple of different models and the basic story will be the same. This model is based on what percent goes to the services contracting is done over discretionary. And we do a time series analysis. If you just took the 2012 percentage and projected it forward, you'd have a roughly similar story. The error bars are fairly large. 1.5% plus or minus as a percentage of total discretionary spending or 15 to 20 billion plus or minus. However, even with those very large error bars and even with the fact that the CBO projections we use for total discretionary are just that projections, there's a lot that could change. We seem unlikely to return to past peaks and at the lower end of possible analysis we're going down to the levels that we only saw in the middle of this past decade. I should note that this chart is actually in the executive summary of the report on Roman numeral page 6. We've put a fairly robust executive summary together and we'll probably end up printing that and releasing that as a separate document for ease of circulation and removal of printing bulk. Let's go back to the history then. The last fiscal year. This chart, this is page 6 in your report and it's chart 5 if you're following along in the charts. It shows total federal contract obligations for service contracts by government agency. Not surprisingly, the Defense Department is still the biggest piece. That's the blue piece down at the bottom. 187 billion, it's still 60% of total services contracts but it is down from a peak of 220 billion in 09 and 62%. So in terms of total dollars, DOD is down and as a percentage of total government services contracts DOD is down and that's continuing to decline. There's actually a three year declining compound average growth rate. It's funny to talk about a declining growth rate but it is a declining growth rate of over 5% per year in DOD and there's almost no stimulus money included in that decline because DOD barely got a billion dollars worth of stimulus money in the American Recovery and Reinvestment Act. It's useful to look at some of the other agencies as well just to go through them very quickly. Health and Human Services is up on an average of 8.5% per year over the last three years but every other agency that we report here is declining. DOE is down an average of 8.5% per year DHS down an average of 6% per year State Department and AID down 3% per year NASA down 1% per year and GSA is down 15% per year. Greg you might want to expand a little bit on the GSA data here. So part of this is a change in GSA of reporting methodology. They have dropped much of their lease contract reporting from FPDS. We have cross verified by their other reporting that GSA is not out of a lease business and we have spoken with them. The short version is that they are not required by law to report that information to FPDS. They are allowed to do it. It's in a category that is optional and the fact that they are no longer doing it does greatly reduce the transparency because if we look at their past levels if we look at what they've reported elsewhere that's on the order of 40% of their service contract obligations and 2 thirds of their obligations in the facility-related servicing instruction category. So this change should not be taken in the slightest to be representative of a change in the underlying data. It's very much reporting and we think it's a reporting change based on the fact that it's not as good for comparing for past and it just means that the visibility is lower. And facility services contracts for GSA is not a trivial chunk of change so it's a pretty important change in methodology. I should note that you can't really tell it from this chart but when we get to the back and you look agency by agency each agency hits its peak at a different year and so measuring the decline from the peak you have to look at each agency on a case-by-case basis. Let's look now across the federal government by what we call service areas, right? This is our breakdown of the categories of federal procurement data system reporting. You have PDS reporting. The appendix in the report gives you all of the crosswalk if you will and we've been able to crosswalk our data to each agency's own separate reporting. DOD for instance has its little categories that it uses for services contracts and we can crosswalk the data back and forth quite adequately to theirs. Greg, could you walk us through the six categories here and some of the key highlights? Certainly. So, as I previously mentioned facility related services and construction declined in large part due to GSA but also due to a decline in the DOD but it's not due to a reporting change. So that's largely in building construction though some of that is a change in the way of categorizing things. In R&D, again, DOD is the main source of decline from about 39 billion in 2011 to 35 in 2012. Space was particularly hard hit the applied research areas and we also saw declines in aircraft, electronics communication and general engineering. Professional, administrative and managerial services. There can be both a high-end and a somewhat catch-all category. There has in fact been an attempt to move away from some of the broader categories like other professional services although despite that there's a slight increase in that categorization. The majority of the decline again comes from DOD a decline of 9%. There's been a drop in management support services which was a goal of OMB that had been hoping to reduce it by 15%. However, the actual fall was only by 10%. Equipment related services was actually a rare area where there has been a slight up-tech. So it gained more than 5 billion and Equipment related services is almost completely dominated by the Department of Defense. So we're talking Department of Defense, so major platforms, etc. Information and communications technology they peaked in 2011 and then have declined slightly. Again, DOD. And the big six have actually been declining in ICT faster than other categories. Big six major defense contractors that is. We'll talk about them more later. Medical obligations did decline slightly. However, they're still left with the 2012 value that's higher than any pre-2011 peak value. And again these categorizations are all done by product or service codes and if you ever want any more detail on that that's contained in the report and we're happy to talk about them in detail. I should note also that we have actually been encouraging the Defense Department for a number of years to look carefully at what they were categorizing as a product contract which was really equipment related services. So we had aircraft support contracts for instance that were categorized in FPDS as a product because it was an airplane but to us it's a service because in fact it's a logistic support contract and it could be that part of the increase in the Defense Department's equipment related services is a reporting shift or more accurate reporting if you will. To do that we have to look at each individual contract and we break down after a couple hundred of those and quit looking because there are simply too many. We spent a lot of time on competition in our report. This chart is not in your report but it basically lets you see how we crosswalk from the 17 categories of competition that OFPP includes in the guidance for federal procurement data system down to the four categories basically of contracts that we look at competition with multiple offers, competition with a single offer, no competition and what we euphemistically refer to as unlabeled which often means some data are missing like for instance it might say it's a competitive contract it was awarded and nobody bid we usually think that falls into the category of a labeling problem or data entry problem and this is what the data show. This is in your report is page 8 in the report and it's chart 8 in the categories if you will basically what these data show is that no competition across the federal government the category of no competition was 20% in 2011 it's 21% in 2012. Competition with multiple offers kind of a success story 62% of all competitors by dollars all contract obligations in services contracts 62% were awarded under competition with multiple offers in 2011, stable percentage in 2012. The bottom line is there is still considerable room for additional competition in services contracts. We have a similar flow chart that breaks down for what we call funding mechanism cost reimbursable, time and materials fixed price contracts. FPDS has all these categories 17 we break it down into five fixed price cost reimbursement, time and materials I want to focus a little bit on the category we call combination because this by FPDS definition could be something that's a combination of fixed price and cost reimbursable. This does not mean that there are not combination contracts in the other categories the guidance is pretty clear the data enterer is supposed to categorize a contract as fixed price cost reimbursable etc. based upon what best fits the preponderance of the contract line item numbers and the deliverables under that contract so you could have a contract that has 60 cleanse in it for instance 55 of which are fixed price five of which are cost reimbursable presumably the data enterer will conclude that falls in the category of fixed price contract but it is possible they could say well this is a combination so we put it in combination contracts. This is important distinction when we look at what the data actually show us. Here's the data. If you look in your report on page 10 and your charts also on chart 10 and I want to focus on a couple things here one is fixed price contracts which is your blue bar at the bottom 48% of all contract obligations under services contracts were fixed price in 2011 up slightly 49% in 2012 and cost reimbursement was steady at 43% but look back a little bit at the data in 09 and 10 you'll see that the category of other and the category of combination the purple at the top you can see in the years 0607 0809 that purple combination was growing substantially so by 2009 we had about 40-50 billion dollars worth of combination contracts we were as we were doing our analysis noting this to OFPP and GSA and there was guidance went out that basically said quit putting so much in combination figure out where it actually goes. So you can actually see a pretty substantial fixed price contracts between 09 and 10 and a slightly smaller increase in cost reimbursable contracts between 09 and 10 even as the total came down a bit almost all of that those increases correlate highly and we haven't looked at each individual contract so we can't say that it's pure cause and effect but they correlate very highly with reduction dramatic reduction in reporting as a combination contract so it looks like an increase in fixed price contracting and a slight increase in cost reimbursable is actually probably just better reporting of the data and the subsequent years 11 and 12 would show essentially flat both in terms of percentage of obligation dollars in fixed price contracts and percentage in cost reimbursable are essentially flat so we think that this is a fairly stable environment if you will inside each contract of course there's a lot of different dynamics going on this just reflects the overall data if you will we by the way are unable to determine from FPDS what contracts were awarded under categories like low price technically acceptable there's no field that allows you to pursue the data and analyze it based on that sort of category if you will let's look now by across the whole federal government by contract vehicle so contract vehicle we have what six different categories page 11 and also chart 11 so this is the first year we've actually gotten our contract vehicles from the raw data which will allow us to cross walk them with other sections and you'll see that a little bit later definitive contracts and purchase orders your traditional awards have both been down but they're down in rough proportion with the overall decline purchase orders saw their peak early in this past decade and have not really come back though if you looked at this at a contract action level much larger single award indefinite delivery contracts are down multi award have been growing throughout this period there's still only a relatively small portion it's that light blue bar but they've been steadily increasing and we're likely to see if trains remain as they have been their increases at least as a share in the future they similarly have been taking away some market share from single award IDCs and from FSS, Federal Supply Service and other government wide vehicles and the like the unlabeled vehicles have been declining they decline even a little bit more if you use alternate sources we have a slight increase in unlabeled based on the new method we're using very small so one of the big drivers of multi award contracts is that because you have a pre approved group of vendors they are somewhat similar to run ads contracts and that can be very useful for some purposes namely since you have very limited contract to officer time etc though we also can introduce other complications and we're going to speak about that more later in the report we're going to look at competition statistics by each of these contract categories but the real takeaway here is dramatic most of the decline in spending has been reflected in decline in definitive contracts for services contracts much higher percentage is still moving towards the delivery order type contracts let's look now at contract obligations by the size of the vendor or the company if you will we have four categories this is the first time we brought the big six contractors in as a category for our services contracts if you will the four categories are essentially small business down at the bottom defined by the federal small business set aside standards medium businesses in the middle large which we define as more than three billion dollars a year in total annual revenue from all sources and then the big six at the top are obviously part of large but we break them out as a separate category so really the definition of middle is bigger than small and smaller than three billion a year we made a change a few years ago from a billion a year to three billion a year largely because if we look at competition there's a break point in who competes at about three billion dollar a year level as opposed to the billion dollar a year level so what are the data show us here what they show us is that just in the last year between 11 and 12 the big six contracts are down about seven percent for small businesses it's only down five percent so small businesses have been more than holding their own in a declining services contracts market medium size businesses down eight percent so slightly more than the market decline overall large businesses down nine percent and the big six are only down three percent so the two groups that are protecting their market share actually growing their market share in a declining market are small businesses and the big six contracting firms the big six by the way are Lockheed Martin General Dynamics, Raytheon Northrop Grumman Boeing and BAE Systems so as percentage now you have a pretty careful breakout the big six are sixteen percent small businesses twenty one percent medium size businesses are thirty percent of total services contract dollars across the government and large businesses are thirty three percent those numbers are contained in the report Greg? Yes so one factor behind the small keeping its own share might be a fact that our small reporting looks at all services contracts federal government small business requirements look only at contracts performed in the United States for other standards but that's one of the big ones so as you see a decline in contingency contracts the percentage that are subject to small business requirements will go up so don't expect our numbers to exactly match federal reporting numbers that's because we're looking at different numbers that is not because federal numbers are inaccurate or our numbers are inaccurate. We also make one other adjustment we actually do companies by dunce codes right so we track the contract dollars by the dunce codes and government regulations and rules allow when a larger company acquires a small company that small company retains a small business set aside capability generally for two years and government reports and takes credit for small business set aside during those two years we discount them as soon as the deal is done we basically once the dunce code is transferred over we start counting it as the category of the parent company that has acquired the small business so our small business numbers are actually a little bit lower than government's numbers as a result of that but we think they reflect the reality of actual contract awards and where the revenue is flowing if you will. Let's now look at contract size if you will. Greg? so contract size this is what chart 13 and page 13 yes contract size is based on annual obligations so we're looking at how much goes out for the contract in a single year rather than the total life of a contract and the changes have actually not shown a clear bend particularly small contracts so 250,000 a year or less have actually dropped off dramatically between 2011 and 2012 at about 40% you also see a less dramatic but still higher than overall drop change in the 100 million to 500 million category while the greater than 500 million say relatively constant a 3% drop the implications of this you'll see a little bit more when we look later at competition by contract size one of the main complaints we'll regularly hear from smaller medium vendors is that they cannot compete for particularly large contracts and you'll see later if that complaint seems to be born out in terms of the market shares we received I have a comment to make on the previous chart as well in terms of size there's actually one vendor or one service provider missing from this chart and that's the federal government itself unfortunately we're bound to analyze only that for which we have data there's no good source of data on how much the government itself spends on its own services and either by agency or by category if you will R and D managerial facilities related services etc to do a really excellent analysis requires to have better government spending data by all the same categories I note on this chart we don't have those but if we did both the magnitude of the chart and the scale would vary considerably but let's look at those vendors we can't identify and that is the contractors if you will this chart which is page 14 and chart 14 is the top 20 federal service contractors by prime contract dollars as reported we have 2002 on the left we have 2012 on the right and for convenience we give you in 2002 the 2001 rank of those companies on the 2002 side and for 2012 we give you the 2011 rank on the right hand side you can actually see a fair amount of stability here for of the top five or the same in each of those years that is the same at the beginning of our data in 2000 as it is in 2012 but in the overall composition of the top 20 there are several significant changes if you will every contractor in this category received more than a billion dollars in contract obligations in three or more service areas so equipment facilities professional administrative managerial so every contractor here is spread across all of the contract areas we have a lot of more detail of that in our report if you will one of the interesting shifts of course you see is the presence on the right hand side of three of the DOD health care providers companies in the top 20 services contracts if you will and back in 2000 only one was in the top 20 this shows the shift in spending into DOD and military health care military beneficiaries and retirees active duty and reserve service members and that shift is reflected in this top 20 I should note that every one of these companies reports a different number than the number here because this is not the total contract dollars that they get on services this is prime contract dollars we can't adjust for either dollars that each of these companies gains as a sub to another prime or dollars that they then transfer to a sub in their own prime contracts so many of the companies here will have very different numbers in the ones we report this is however what the public database reports for each of your companies if you're on this list let me now look at competition I'm going to refresh your memory this chart we had up before this is page 15 in your report and we had it much earlier I don't know actually remember where it is on the report I don't have that on my data here but this is basically the one that shows that all offers is stable as a percentage declining as total dollars and that there is ample opportunity for competition so let's look now at competition by some of the categories this is competed awards by number of offers received by contract vehicle type so the left hand side is definitive contracts and the colors if you will are basically the dark blue at the bottom is a single offer so only a small percentage of definitive contracts were competed and only had a single offer a much higher percentage were competed with two offers it's over a third of total definitive contract dollars three to four offers is another fourth of the total if you will and then multiple offers including indiscernible or very small number that had 25 or more offers for a single definitive contract if you will it's a very different story in the other types of categories and the orders have not surprisingly substantially more single offer contracts if you will more than a third of purchase order contracts for the delivery order type contract single award IDCs and multiple award IDCs as well as for the federal supply schedule and others there really two layers of competition reflected here because obviously there was competition to get on the vehicle in the first place and then there's competition for the individual awards this only reflects the second category of competition for individual awards and so what often looks like a single offer is really a single offer inside an existing competitive vehicle on which companies are sitting if you will but it's instructive to look at the difference of the data by the different types of contract vehicles we'll be glad to expand on this a little bit let's now look at contract size Greg so contract size you'll see definitive had a very large share of two offers that's because many of the greater than 500 million annual obligations contracts are definitive so you can see that 61% of competitions with very large contracts only get two offers this is relatively straightforward phenomenon these are service contracts that involve particular specialties and the like but at the same time it's possible that if they were broken up or structured differently they might be open to competition by more vendors you also see a lot of single offer competition is focused at the lower end of sizes that is probably a salutary effect of oversight in that the larger contracts are the more attention they tend to get and the more effort is put towards making sure there's multiple competition in a number of categories where we've looked we found that high attention ones are more likely to avoid single offer so as I mentioned when we were looking at the chart on page 8 on competition the bottom line here is there's still considerable room for additional competition of course it's in a declining market and at potentially more competitive rates and prices and that was page 77 we then look a little bit at the varying values if you will by the size of the vendor small, medium large and the big six in terms of size of contract so let me walk you through this might be a little off putting we are on page 711 so this is a absolute spend chart so you can see that from the lesson 255 at 5 million or lower small businesses get the largest market share as you get up to 5 million to 25 million medium takes the lead small is still there but they're starting to drop off as you get to 25 million to 100 million large crosses small and this is large excluding big six and big six is steadily rising in each of these categories and small really starts to drop off large crosses medium 500 million to 500 million medium is dropping off and the big six vendors big six DOD vendors in and of themselves have about the same amount of revenue as all medium vendors in that category finally as you get to greater than 500 million you have a small number of medium vendors still those are probably going to be largely dedicated government firms because that's going to be a big chunk of the year but large firms and big six just dominate the category completely so while multi award contracts do seem to be able to get competition in multiple offers as we get steadily larger we complain to that very large contracts have fewer offers and are open to a smaller pool of contractor vendors is born out by the day so the bottom line is that small businesses tend to win the largest share of small contracts medium-sized businesses tend to win the largest share of medium-sized contracts and large businesses tend to win the largest share of large contracts that is not counterintuitive but it's first time we've actually looked at the data and made sure that they actually are consistent with what you would believe in the report we cover a lot of detail for a host of government agencies we're only going to go through three of them here I'm happy to answer questions on any of those I should note as well that we're happy to have follow-up discussions on particular elements of this the richness of the data we could run 500 charts through here we wouldn't have any audience of course but we could certainly do that but if you're interested in any particular piece of it either our web viewers or those in the room we're happy to set up a time and arrange to come and brief you on particular elements of it if you will so let's look at three agencies of particular interest these are kind of eye charts if you will you've got the data in the report as well this is on page 43 in the report and it's chart 20 if you're following along this is the defense department services contract obligations by the various elements the categories if you will the contract vehicle, the extent of competition funding mechanism and vendor size a few key points facilities services for DOD actually showed moderate growth over the last few years despite an overall decline so DOD in the last few years overall in services contracts is down 5% per year but in equipment related services it's up almost 6% per year facilities services on the other hand is down over 11% per year it's the biggest decline inside DOD spending we see no indication for any change in that direction or magnitude going forward similar by vehicle multiple award IDCs in DOD is actually up about 1% per year over that three year period and other indefinite delivery vehicles are up almost 8% per year so DOD's use of delivery order contracts for services contracts is actually growing while it's use of definitive contracts and purchase orders is declining even more dramatically than the 5% per year average a lot more detail inside here again it's a bit of an eye chart I'll give him to a couple of others Greg you want to make a couple of comments of Homeland Security first off if you look there's a spike that can be attributed directly to Hurricane Katrina and recovery efforts but so that's 06 but in more recent years they've actually had a dramatic improvement in the number of contract obligations awarded with multiple offers 38% in 2009 10% in 2012 they should also be credited over recent years for dramatically reducing their percentage of unlabeled data we've mentioned that before in our DHS report but they've really done a comprehensive effort to improve things there and should get credit for it they have overall a slight decline PAMS professional managerial administrative and managerial services responsible for much of that multi award indefinite delivery contracts have actually been on the decline for DHS so they're a bit of an outlier from the rest of government in that regard this may be the first time that the Defense Industrial Initiatives Group has ever talked about the Department of Health and Human Services in any of our public briefings but they're the one large agency in terms of federal services contract dollars that actually has been going up over the last few years so we thought it was important to take a look at them and see what we could see so page 51 chart 22 so they're reviewing to increase they have been fluctuating at about 13 billion and the big driver there has been information and communications technology whereas R&D has actually been on the decline some so that would be consistent with things like electronic medical records and the like now let's look at the six service areas that we have we're just going to briefly skim through these these are all in the middle pages of your report starting 20 and 21 and beyond Greg why don't you run through each of them quickly tell me when you want me to click to the next chart so as we already mentioned PEMS they did not meet the OMB goal of reducing the administrative support contracts it peaked in 2010 so a little later than some of the other areas and notably in PEMS they get credit for moving a fair number in some areas moving out of vague categorizations we're now actually seeing categories for high interest topics like security contracting and the like which previously fell into vague catchalls now have specific identifications next chart please okay so R&D page 25 chart 25 so R&D contract obligations have declined they peaked in 2009 which followed with DOD in general and the big six have been declining steeply in that category however they're obviously still dominant so they went from 49% of R&D in 2009 to 42% in 2012 and I would note that part of that is 2012 is the first year that you have Huntington Ingalls Industries separate from Northrop Grumman and so part of it is you lost a chunk of the big six and Huntington Ingalls is still getting some R&D contract dollars let's go to equipment related services this is chart 26 and it's page 28 in your report so if you look at the upper left of those charts you can see just how dominated equipment related services is by DOD that's the pale green everything else is just a small pile on top so that was 5 billion Ingalls and similarly you see a fair amount of definitive contracts you see a lot of fixed price in this category and you see a lot of multi offer competitions so doing relatively well large and big six in general also are fairly dominant here though the big six are not as dominant as they are in R&D so we love this stuff and we could go through chart after chart on and on and on but I think at this point it's probably time to call and end to the presentation to open both the floor to questions if you're watching on the web you are welcome to email me questions at dburto b-e-r-t-e-a-u c-s-i-s dot o-r-g and we'll take questions those of you in the room we have of course our standard procedure you raise your hand we'll recognize you you'll wait for the microphone you'll take the microphone and tell us your name and your affiliation in the room questions or comments you're not required to do so usually when I teach class just because you don't ask questions doesn't mean you get out early but in this case it actually might Sheila? Sheila Ronas from Walsh College as you know we have been very concerned about the overall base and its long-term impact on our national security and I was wondering if you would comment about the data you have just showed us and what you think the long-term implications of that are for securing our industrial base and more particular in services the knowledge in the heads of next generations of people didn't have my microphone on so if in fact the services are a separate industrial base that we need to pay attention to then what's the composition of that the skill base, etc but if you look at the structure and particularly look at who's sustaining or growing their share in a declining market it's two categories it is in fact the large companies especially the big six and the small businesses who sustain the capability you need inside that industrial base in a declining set of dollars with market share that's becoming potentially a little more concentrated and with opportunities for more competition none of that says that you're going to get to an endpoint that guarantees you maintain the capability and capacity you need to have so the data that we have don't actually give you the answer to that question but I think it highlights the need for better analysis at looking at it so is the complete disparity of types of contracts that you have here the capability and competence you need both at skill level in terms of corporate capability for facilities related services is so dramatically different than it is for professional administrative and management services and embedded inside professional administrative management you have everything ranging from what's prohibited by law personal services contracts but which in fact probably happens anyway to really high end applications highly qualified individuals that the government itself has a great deal of difficulty competing and succeeding and bringing them in as a career civil servant so it cuts across that range I don't really know how to answer the question but I think we have the start of a good package to deal with it if you will let's have one question here I think we had another one over on this side here hang on for the mic does your data include what are things like logistic services or training which categories are those the data do include overseas contingency operations however we don't have the ability through the federal procurement data system data entry to distinguish the source of funds and so you can have a mix of funds both from general operation and maintenance funding accounts and overseas contingency operation similar for R&D etc they don't break it down as well in terms of the second question Greg? professional administrative and managerial services would have both logistics and training yeah in general where there's been some categories where transportation of like where we have to break out things between people and equipment when it's people matter we normally will put it in professional administrative and managerial so if there was a moving logistics side that might fall under equipment but almost all of what you're talking about is PAMS other questions so some of the decline you see is declining contingency contracting Rich? Rich McFarlane from Parsons immense amount of data which is just fantastic two observations that I think I'm wondering if you've seen any data on this one is that in terms of the unpredictability of the budget environment is that we're seeing our customers go into a recompete mode rather than a new work mode and the reason they're doing that is that it gives them the ability to have some control out over their budget execution so I was wondering if you all were seeing those kinds of trends there in the data that you're seeing and the second thing that comes to mind for me is the sheer I guess enormity of the data I struggle with how to forecast the future with this with this information because I see what I think I'm seeing is a declining market one characterized by re-competition and therefore a new work is going to be offered and that's really where companies are getting there it becomes a take away rather than competing for a new work and therefore the ability to grow becomes much more intense and difficult to do because you're simply taken away from your competitors so there seems to be a convergent line someplace is any of that kind of information reflected in your data or did you see any of those kind of trends there let me take a crack at both of those thank you Rich for that on the question of essentially re-compete I assume you mean opening up a contract for competition when you actually have option years that could still be exercised as opposed to starting a competition before it's time if you will we've heard stories of that I don't think we've looked at the data I'm not sure Greg whether in fact inside FPDS we really have to go contract by contract back to the previous award see how many option years were in the previous award and then look at whether it's re-competed sooner than that I would be hopeful that there would be a better data source than going through 850,000 contract actions a year to try to figure that out because I haven't figured out how to automate that yet but it is a serious question I think from a competitive marketplace if you will and it could skew the competition numbers it seems to do a sample and see what we see there in terms of large contracts and whether I'm not quite sure how you'd tell a trend or not in terms of future though I think that's something where we've set ourselves up here for a pretty good assessment the real questions I think are twofold one is what's actually happening in FY13 we have some preliminary data for the first couple of quarters if you will but the real impact of sequestration probably won't show up in those because there's one month of sequestration in those data and I think the issue of what's going to happen in the fourth quarter is still kind of out there if you will we're seeing at least in initial reports for July which is the first month of the fourth quarter a substantial decline in obligation rates in contracts in July over both July to July so the July of the previous year and June to July month over month substantial decline in federal government in all types of contracts we'll get the August data a week from today the Treasury Department puts out its monthly obligation data contract obligation data on the 10th of the month so we're going to look very closely to see whether that decline continued in August both in terms of month over month and year over year by month and then of course September will be the real issue because you have sort of two new competing dynamics if you will the traditional the tradition is obviously if you've got money left in the fourth quarter of the fiscal year you spend it and a lot of us tend to have a disproportionately large share of our bookings and revenue come from that end of year spending not dramatically disproportional but more than a one fourth share but there are two countervailing dynamics going on right now one is in fact for the first time in a long time there's actually a benefit of not spending the money because you've got something else that you can use it for if you will under sequestration and the second is the impact particularly in the defense department of furloughs and in the furlough mentality working to the rule of you only work eight hours a day you don't work overtime you don't bring your blackberry home and work from home on the weekends we've seen a throughput problem if you will of essentially it's just harder to get contracts out solicited evaluated, awarded and get funds obligated and so those competing dynamics are having I think a depressing effect at least from the initial data in July we'll have to see what August and September show that's just for 13 then the question is how much of that gets replicated into fiscal year 14 we put out a document here back in the spring where we called fiscal year 13 the lost year in the defense budget and I think in some ways that's true across the federal government a little bit less true because the impact of sequestration is less on domestic discretionary funded agencies than it is on the defense department we see very little sign of FY 14 being anything other than a continuing resolution essentially flat at the FY 13 level that by the way is not enough to get you to the budget control act cap you're going to have to take another 17 billion or so out of defense and another couple of billion out of domestic discretionary presumably in January it's either 15 days after congress adjourns or by the middle of January if congress never adjourns and I don't know what they're going to do so you'll see a kind of a double impact in FY 14 and then the real question is what's the FY 15 budget submission going to be as you know from both the OMB guidance and the DOD post skimmer guidance as reflected by Secretary Hagel both government wide and within the defense department they're preparing two budgets or three one which assumes that the budget control act is gone away by fiscal year 15 and that the government can get essentially its request one that assumes the budget control act is still in place so it takes a hundred billion dollars out of that request and one at least in some agencies that splits the difference essentially compliant with the senate budget resolution to levels it's pretty hard to predict what any of this is going to look like because then you have to decide which one of those three budget levels you know they're not high medium low but relative to one another they're high medium low which one of those you're building your projections on I think this is an incredibly difficult time for a company to figure out what its projections ought to be and in part is because it's an incredibly difficult time for the government to know where they're going to be you know you're literally all year have had been justifying a budget that is not the budget you're going to start executing in 28 27 days if we're lucky if we're not shut down so it's just awfully hard to project so our projections actually show you know the upper and lower bound of that but we really only carry it out to 15 it's very hard to see any scenario in which we return to what look like normalcy even as much as a year and a half ago that's an awful long answer to the question but I think it deserves a pretty thorough examination if you will Bragg you have comments and in terms of reporting obligations we report you can see out of CSS I first can look at the ongoing agencies for 2013 because the Department of Defense has a 90 day reporting delay so we're probably going to be examining things like DHS or diplomacy and development first full on 2013 DoD analysis will probably only come in 2014 I have a couple questions from the web that I'll consolidate here and then I have another question from the audience here the questions revolve around competition and the degree to which we've assessed the record of competition for services compared to say competition for hardware in terms of both outcomes and one questioner calls it the coherence and objectivity I don't actually have an objective way to measure coherence in the data that we have here but I do think it does behoove us actually in preparation for this event this morning of the need to look at the competition particularly within the large agencies by the categories of products and services and see what those data show us and I think we're going to we've got some preliminary data on that we put a little of that out in our DoD report a couple of years ago actually through FY12 last year or through FY11 last year and we'll update that on the DoD report this is not quite certain if this is the last event Nicole is this the last one we're going to do in this building so most of you know that we are moving to a new building we are actually shutting down our offices here two weeks from today will be our last day in this building and then we'll be moving to a new building four blocks away one that has much taller ceilings in the briefing room so it will make me look smaller up on the stage but that was not the intent so this will be our last one here but we'll be rolling one out on looking particularly at the defense department and all of these data both services and products and R&D for DoD after we get to the new building question we have two here woman in the back and then man in front Hi I'm Liz Gormisky from Defense Daily I wanted to go back to some of the DoD information that you had the uptick in equipment related services decline in R&D and the fact that they weren't affected by stimulus taking all of that together can you sort of flesh out what's driving that pre-sequestration? I'd have to go back and I didn't do it for today's session and look at our DoD report from last year because many of those trends were already underway in the 2011 data that we had it really didn't occur to me until preparing for this event that there's possible correlation between equipment related services and a recoding if you will of particular contracts and there's a couple big ones we're going to look at and see whether that answers that question so I'll get a card from you and maybe send you the email the answer to that question when we're done but in terms of what it means overall for DoD I think that we're really going to have to wait and see what the 13 data show us and the post-sequestration expenditures if you will because the spend pattern for 13 is so dramatically different both in the initial categories where you had the guidance of spend normally so in the first quarter of fiscal year 13 DoD was in fact not only spending normally but in some cases spending at a rate faster than would be sustainable under a sequester level if you will and then you had a drop off of that and we'll have to see what the fourth quarter data show in terms of how much is there a recovery to drop off and how not I think it's too soon to tell until we have the 13 data to be able to see exactly where DoD is and where they're going in front, yes Duncley and Elbow Systems of America two questions, one is fairly brief the other one might take a little longer for your FPDS data for DoD does that take into account any foreign military sales contracts that are awarded because there's fairly significant contracts that have come out recently? Yes, there is a category for foreign military sales we're starting to look at it is not consistently reported prior to 05 so one thing that we'll be looking at for our future DoD reports are whether in the past it has been consistently reported but yes, we're seeing some large major contracts contributing to DoD I mean theoretically, not to digress here too much, but theoretically you could use the congressional notification as a precursor to that and then circle back to see if the numbers that are reported are consistent with what was reported in the personal application We can certainly use the notifications as a comparison in many many cases the fiscal year of execution is different than the fiscal year of execution as you well know what it does not include though is direct military sales that are not government funded but our government endorsed sponsored or part of our overall foreign policy What I had is with regard to competition on the multiple award contacts traditionally you might see 4 or 5 companies that are granted a hunting license let's say to go out and be eligible for award but then if you start looking at the preponderance of the task orders or delivery orders it really narrows down substantially so on the surface you have the appearance of competition but the reality of the actual contract awards may be different I'm wondering if your data can show you those subtleties in let's say a place where a particular contract vehicle had 5 awardees but if you went back and actually analyzed where the money was flowing you might see that only 2 of the 5 awardees actually were getting any substantial benefit from those contracts I don't know why this thing does it turn off automatically? I think it turns off when the mic goes on I need to pay closer attention this is a new technological integration with which I'm not very familiar I'm going to have to rehearse better for the next one sorry so the chart that we have here this is chart 16 you'll see for example in the right hand category of federal supply services and other IDV's over a third just show a single offer right because in fact that's exactly what the situation you're describing there were multiple computers for the basic contract but the individual awards the individual task orders that come through this are in fact only have a single offer and these data do reflect that if you will and then we break that down in the report by the category of professional management equipment related and so on I think we're pretty close to the end here if we have no further questions let me just check and make sure from a viewer's point of view oh you have one over here sorry didn't mean to cut you off no problems there, Spencer any government solutions I was wondering if you examined how commercial satellite communications and millsatcom complement one another and did you find any architectural analysis from the DOD that showed how the two can fill gaps or shortfalls we haven't done that in context of this report or our contract analysis we do have some other efforts underway looking at that both from a regional point of view particularly a paycom and the challenges of bandwidth provision over the Asia Pacific region with the strategic rebalancing and also with respect to some of the provision of components and launch capacity in support of those efforts but those are ways away from being briefed out thank you sir and do you have any update on the congressional concerns regarding satellites owned and operated by the states of concern don't have anything on that thank you let me just summarize kind of where we see things if you will overall the government services contract business showed a fair amount of growth for the decade of the aughts but since the peak in 09 and 10 it's coming down pretty dramatically almost across the board by every agency ranging from 1% in NASA to 1% in DOE that is largely driven by a stimulus decline if you will we think that that trend is going to accelerate that the reductions will accelerate we see that service contract dollars are coming down faster than contract dollars for products and as a percentage of total federal spending services contracts is declining right so even as overall federal spending comes down further we see a fair amount of competition but some room for additional competition it would be logical that competition would become more cutthroat if you will more competitive both in terms of individual rates and overall prices given that pretty good percentage of services contract dollars are awarded under fixed price contracts we would expect that competition and the price to be reflected there so it's not a rosy picture if you will and I think the key thing from our perspective is what looks different when we have the 13 data we're going to try to rush I think our analysis of FY13 data one of the things we've done is substantially increased at CSIS our capacity to do analysis both our data storage capacity and our data manipulation capacity so we can do things now in a couple hours that used to take us a week and we expect to be able to turn out updates for FY13 well before September of next year possibly as soon as February or March of next year and we'll be keeping you all posted as we go along and in addition over the next few months we'll be rolling out a couple of our individual agency summaries which goes into more detail than this DoD I'm not sure we're going to update the Department of Homeland Security this fall we may wait until next year there I think we're looking at the state and the AID as well so that's it from CSIS thank you all for being here thank you to our viewers on the web and be happy to arrange a time to go into more detail with any of you thanks a lot, bye bye