Industry Market Trends
Expert's Corner: The Government Market in 2013
January 22, 2013
Although U.S. government budgets appear to be improving, manufacturers may soon find themselves struggling to land government contracts, as upcoming budget battles are poised to hinder economic health unless they are quickly resolved. GovPro.com's Michael Keating sheds light on how deficit-ceiling combat in Congress could hog-tie the government market in his latest Expert's Corner. The U.S. economy and government budgets appear to be getting stronger at the start of 2013. The economy grew at an annual rate of 3.1 percent in the last quarter of 2012, which was the fastest quarterly growth since late 2011, according to the U.S. Commerce Department. Exports increased at a fast pace in the third quarter of 2012, as did consumer spending. In addition, employment rose in several sectors and the U.S. housing market appears to be on the mend. An improving economy could translate into increased government spending. In 2013, government purchases of goods and services will reach $3.08 trillion, up slightly from $3.07 trillion in 2012, according to Lexington, Mass.-based economic forecaster IHS Global Insight. Of that amount, federal government purchases of goods and services will total $1.2 trillion in 2013, while state and local government purchases will reach $1.88 trillion. By 2018, government purchases of goods and services will rebound to $3.36 trillion, IHS predicts. The White House and Congress have temporarily resolved the fiscal cliff crisis through the American Taxpayer Relief Act of 2012, signed by the president on Jan. 2, which will raise approximately $617 billion in higher revenues from 2013 to 2022. The legislation raises taxes on individual net income over $400,000 ($450,000 for couples) while holding tax rates steady for income below that amount. However, the bill only delays the debate over how to cut spending in order to rein in the nation's soaring deficit and whether to raise the nation's debt ceiling to allow the U.S. to pay off its bills. "While the markets and most taxpayers may breathe a sigh of relief for a few days, excuse us for not celebrating," Greg Valliere, chief political strategist at Potomac Research Group, told IMT. "We have consistently warned that the next [budget] brawl represents a far greater threat to the markets - talk of default will grow by February, accompanied by concerns over a credit rating downgrade." Potomac Research Group is a Washington-based independent research firm that provides policy and market analysis to institutional investors. There's no guarantee that the U.S. economy will be booming in 2013, said Bill Cull, vice president of public sector at San Francisco-based Splunk. The company provides software that collects, indexes, and harnesses the machine-generated big data coming from the websites, applications, servers, networks, and mobile devices that power government and business. "The future of the fiscal landscape remains uncertain, and governments are seeking efficiencies and cost savings wherever they can get them, which paves the way for a strong government market in 2013," Cull told IMT. "One of the most significant challenges agencies will face this year is the ability to make sense of the growing sea of big data in virtual and physical environments, without making irresponsible investments. Government needs the ability to apply every single piece of relevant data to their mission, all while decreasing IT costs. This will be a key driver behind what I believe will be a strong public sector market in 2013." Splunk's IT solutions help government agencies create efficiencies and uncover the value of government data. Those solutions "will allow us to help even more agencies solve mission-critical challenges in 2013. Last year, we signed new contracts with customers like the U.S. Department of Education and expanded the work we've done with other agencies, like the U.S. Department of Energy," Cull explained. The government market started to stir when the new federal fiscal year began on Oct. 1, 2012, said Lourdes Martin-Rosa, American Express OPEN advisor on government contracting. "I've noticed a significant number of small business set-aside contracts being posted on FBO.gov. For example, the General Services Administration (GSA) just announced a huge IT opportunity to 43 small businesses," Martin-Rosa told IMT. "With a contract value of approximately $1.7 billion, these small businesses will be able to provide commodity IT products to the federal government." There will also be more opportunities for women-owned small business federal contractors. In December, Congress approved the FY 2013 National Defense Authorization Act, which contains a provision to remove caps on contract awards in the Women-Owned Small Business Federal Contract Program. Currently, contract awards are limited to a maximum of $4 million and $6.5 million for manufacturing. In 2013, contractors should look out for growing government spending on cybersecurity, cloud-based infrastructure, mobile technology, military and health IT, homeland security hardware, human resource management software, and big data projects in government. This short list is based on responses from an informal IMT survey of government contractors, vendors, government officials, and government sales consultants. One of the survey respondents, Scott Goldman, CEO of TextPower, Inc., is optimistic about the new year. "Securing sensitive information, utility grids, and website logins... is likely to raise the demand and spending levels for our product this year," Goldman noted. "We anticipate additional funding by the Departments of Defense and Homeland Security to address the increasing threat levels of unauthorized intrusions." TextPower, Inc. provides alerting and authentication solutions through text messaging to numerous organizations worldwide, including governments. Sellers to government must be nimble in 2013, advised Lisa Anderson, a senior supply chain and operations executive and founder and president of Claremont, Calif.-based LMA Consulting Group, which serves as a strategic operations expert for a variety of companies. "My clients are very concerned about government business in 2013, especially in the aerospace industry. It can be extremely unpredictable, yet suppliers must be prepared to 'act on a moment's notice,'" Anderson noted. "Thus, only those businesses that are able to thrive in volatility with flexible supply chains will succeed. Collaborate with your customers and suppliers if you want an edge in selling to the government, as the lone wolf won't survive." Prospective government vendors must "target their niche carefully in 2013," according to government marketing expert Mark Amtower. "Emphasize all legitimate positive differences that your company brings to the table. This could be superior products or services, or the best customer service in the market. Some companies can still deliver faster than others, and that's a strength." The last piece of advice for boosting sales to government in 2013 comes from Splunk's Cull: "It's important to be honest about your capabilities and product offerings. Agencies need to be able to trust that you can do the job you say you will." Michael Keating is senior editor for Government Product News and a contributing editor for American City and County, both published by Penton Media Inc. His 2012 government budget forecast is available at GovPro.com; as well as the mid-year 2012 forecast. Read his 2013 government budget and spending forecast at Govpro.com. Go here for his IMT 2012 report on how to land government business. Keating has written articles on the government market for more than 100 publications, including USA Today, Sanitary Maintenance, IndustryWeek, and the Costco Connection. Michael can be reached through his website, MikeKeat.net.