Government Contractors Re-competes Down, Competition Up? Survey Says: Maybe


Incumbent government contractors won re-competes only 54% of the time in Government Fiscal Year (GFY) 2016, according to the results of a new Grant Thornton survey. That’s a significant decline from 2015, when the incumbent win-rate was 75%. Although Grant Thornton officials see the decline as a trend, it is really too early to call it one. Whether a trend or a blip, however, incumbency doesn’t have nearly the advantage it used to. Like most news, what this means to your company depends on where you’re sitting.

Larger government contractors with significant business may have to work harder to win re-bids of their current work. While performance is certainly a key factor by which a company can gauge its possible success for “round two” of a project, another factor is Low Price Technically Acceptable (LPTA) contracting. LPTA use was cited by the Grant Thornton survey as a continued driver in many federal acquisitions. No matter how well you may be performing, a customer under tight budget constraints may feel significant pressure to opt for a cheaper price.

Incumbent contractors should take advantage of their existing relationships and engage customers up front about their follow-on acquisition strategy. Providing informal insight can help shape that strategy and, if you sense that LPTA may be used, white papers or other information can be provided to show why that might not be in the government’s best interest in a specific instance. At a minimum, your firm can be better prepared to compete to keep your existing business if you understand the basis on which that business will be awarded moving forward.

Conversely, companies trying to increase their prime contractor business and unseat an incumbent can take heart. Even before the Grant Thornton survey, incumbency was not the iron clad advantage it once was. Other surveys, accompanied by anecdotal evidence, suggest that an incumbent’s advantage may have been slipping for several years. Discussions with your target agency should begin early so that you can develop vital relationships and trust. Non-incumbents can often also more clearly see problems with the execution of existing projects and shape their bids accordingly.

Competition for totally new awards is higher as well, according to Grant Thornton. The win rate for totally new business in FY’16 was 26%, a decline of nearly 10% from FY’15’s 35%. The number in FY’11 was 36%. If the FY’17 number is close to 2016, companies may indeed face a trend where obtaining new business is much more competitive. The “up-side” here is that totally new business represents a very small percentage today of all federal IT spending.

So, if competition is up and LPTA use is still prevalent, what are contractors doing to stay profitable? Grant Thornton reports that many contractors are expanding, or entering, the state and local government markets. State and local governments may have money to spend, at least in terms of operating budgets. Although such business requires special skills, just like federal, firms already experienced with unique contract terms, oversight, and peculiar budget cycles may find state and local government business is familiar territory.

The final takeaway from Grant Thornton’s survey is that federal business continues to evolve.  Many companies still think that the market stands still and that the same tactics used ten years ago will work now. That’s not always true. Make sure your approach to federal business matches today’s realities. Whether an incumbent or incumbent-killer, current knowledge about the federal market is key to success.


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