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The Top Five Issues Facing Government Contractors

When CEOs around the beltway can’t sleep at night, chances are these issues are keeping them up: in-sourcing, organizational conflicts of interest (OCI), the stimulus package, healthcare, and cybersecurity.  Here’s our take on these hot-button issues:

In-Sourcing

In-sourcing has worried CEOs around the beltway since President Obama took office in January and pledged to move “inherently governmental“ functions out of the private sector and into government.  Also, claims abound that the government is “poaching“ the best talent from the private sector with lucrative job security and health and retirement benefits.

Our reporting shows that some sectors will be hit harder by in-sourcing.  First: acquisitions.  Jim Moran told ExecutiveBiz this when we interviewed him in July: ““¦11,000 [acquisition jobs will be] converted from contracting positions.  The acquisition process is inherently governmental.“ Congressman Gerry Connolly agrees that the acquisition process should be brought back inside government.

Second: data center operations.  Regina Gibson of OnPoint Consulting offered this in a recent ExecutiveBiz exclusive interview: “There could be some reorganization of work, especially in areas like data center operations“¦As far as our long term planning, we are looking at the opportunities that would not be affected by competitive insourcing or at least less affected.“

Organizational Conflicts of Interest

The new Presidential administration brought a slew of new ethics rules which are challenging the business models of large integrators.  Contractors are becoming victims of their own success: a large and successful advisory services business unit can hamper the ability of a major integrator to stay in the new swim lanes of contracting.

Trouble is, the only buyers available for a multi-billion-dollar advisory services practice would face the same ethical restrictions as the seller, leaving major integrators with developed advisory services business units up a creek without a paddle.

Healthcare

As healthcare legislation struggles through Congress, most integrators know there’s a pony in there somewhere.  It’s just hard to find.  Since the value proposition of healthcare IT to government is cost-cutting, leading some executives to wonder how they can expect to maintain healthy profit margins in the long-term.  The opportunities are in implementing administrative changes undertaken by healthcare reform.  The biggest opportunity: interoperability, specifically making DoD electronic health records (EHRs) compatible with the VA’s.

Stimulus

The American Recovery and Reinvestment Act of 2009 (ARRA) passed on February 17, but so far only $159 billion of approximately $270 billion allocated for major projects have been distributed, leaving major integrators asking “where’s the rest?”  And, with a significant percentage earmarked for transportation, infrastructure, and public safety projects, many govcon executives are wondering if federal contractors will ever get a significant share of stimulus money.

Our opinion: don’t hold your breath.  Most of the money will likely wind up in the hands of state and local contractors, rather than federal players.

Cyber

Cybersecurity is a lot like a unicorn.  We all know what they look like, we just can’t seem to find any.  President Obama’s speech in May 2009, in which he announced the creation of a “cyber coordinator” position, was widely greeted with approbation. It is now November and we are still waiting for the White House to name someone to the position. Jim Lewis of CSIS calls the delays “indecision and turf fighting,“ while Susan Collins has called for the cyber coordinator to sit in the Department of Homeland Security rather than the White House.

A number of contracts have already been awarded for cyber security, largely as a result of the still classified Comprehensive National Cybersecurity Initiative (CNCI), and more money is still available in these areas. Companies that secured these contracts are in an ideal position, particularly given the growing focus on cyber security throughout the government.

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Written by Jim Garrettson

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