Analyzing Category Management: Information Technology · PDF fileAnalyzing Category...

© 2013 Bloomberg Finance L.P. www.bgov.com | @BGOV © 2013 Bloomberg Finance L.P. www.bgov.com | @BGOV © 2015 Bloomberg Finance L.P. www.bgov.com | @BGOV

Analyzing Category Management:

Information Technology Contracting trends and dynamics to watch

MARCH 25, 2015

Director of Government Sales Research

KEVIN BRANCATO

MIGUEL GARRIDO Quantitative Analyst

PAUL MURPHY Senior Data Analyst

Note: Slide 2 updated March 27 with additional source information

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© 2015 Bloomberg Finance L.P.

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EXECUTIVE SUMMARY

Information technology (IT) is one of 10 primary categories of federal spending

approved by the Category Management Leadership Council (CMLC) » Category management is a strategic approach to increase procurement efficiency

» IT spending reached $64 billion in fiscal 2014, or 14 percent of all federal procurement

» BGOV acquired a draft definition of the IT supercategory from an unreleased government document

Category management of IT has the potential to increase efficiency, benefiting both

government and industry » Agencies use almost 1,400 contract vehicles for IT procurements every year

» The top 100 contract vehicles accounted for 77 percent of all IT dollars in fiscal 2014; the other

23 percent of IT spending was dispersed among 1,254 contracts

» Although almost 75 percent of all annual IT dollars flow through MACs, the vast majority are

agency-specific, indicating that further efficiency gains could be achieved if agencies utilized

more governmentwide MACs for IT procurements

Army, Navy, Air Force and the departments of Homeland Security and Health and

Human Services led all agencies in IT spending in fiscal 2014

The IT market is highly concentrated » The top 10 contractors won 29 percent of all IT dollars in fiscal 2014

Small businesses are winning an increasing share of IT prime dollars » IT obligations won by small businesses increased 17 percent to $21 billion in fiscal 2014

Notes: MAC – multiple-award contract. In this analysis, “IT” refers to the new IT supercategory defined by CMLC. Unless noted otherwise, all figures in this report are based

on an analysis of a draft definition of the IT supercategory from an unreleased government document obtained by Bloomberg Government. The IT supercategory is divided

into six subcategories: IT outsourcing, IT consulting, transport services, software, hardware and secure identity services. The CMLC (previously known as the Strategic

Sourcing Leadership Council) is an interagency body composed of the seven largest and highest-spending agencies in the federal government.

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CATEGORY MANAGEMENT IS A STRATEGIC APPROACH

TO INCREASE PROCUREMENT EFFICIENCY

Overview of category management

Source: Bloomberg Government and Office of Management and Budget

» Category management (CM) is a new approach to government procurement aimed at creating a

more efficient and effective federal acquisition system

• CM will enable the federal government to buy like a single enterprise

• CM divides federal spending on common goods and services into 10 supercategories

such as IT, professional services and transportation

• Each category will be managed by a team of experts with a governmentwide buying

strategy based on improved data collection and analysis

» CM has several objectives designed to increase procurement efficiency and effectiveness

• The primary goals of CM include reducing procurement complexity, fragmentation,

contract duplication, price variability, time-to-award and redundant procurement costs

• Although related to strategic sourcing, CM goes further by implementing strategies to

drive performance, increase transparency, and develop common standards

• CM implementation involves three core elements: buying as one through CM, driving

innovation and strengthening vendor relationships

» The government has set an ambitious timeline for CM implementation in the near term

• Early CM efforts are focused on IT acquisitions, increasing data transparency, reducing

contract duplication and strengthening collaboration with industry

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I.T. SPENDING HAS INCREASED AS A SHARE OF TOTAL

FEDERAL PROCUREMENT IN RECENT YEARS

Spending in new IT supercategory,

by fiscal year Overview of IT supercategory

Note: In this analysis, “IT” refers to the new IT supercategory defined by CMLC, unless otherwise noted

Source: Bloomberg Government proprietary federal procurement database

» Federal IT spending totaled $63.7 billion in

fiscal 2014, an increase of 3 percent from

fiscal 2013

» IT accounted for 14 percent of total

contract spending in fiscal 2014, up from

13 percent in fiscal 2013

» The IT supercategory is divided into six

subcategories:

• IT Outsourcing

• IT Consulting

• Transport Services

• Software

• Hardware

• Secure Identity Services

0%

2%

4%

6%

8%

10%

12%

14%

16%

$0

$10

$20

$30

$40

$50

$60

$70

$80

2010 2011 2012 2013 2014

IT obligations

(in billions)

IT share of total

federal contract

spending

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CATEGORY MANAGEMENT MAY OFFER SUBSTANTIAL

OPPORTUNITIES TO CURB I.T. CONTRACT DUPLICATION

Agencies use almost 1,400 contracts

for IT procurements every year

Concentration of IT dollars

by number of contract vehicles

Notes: SAC – single-award contract (indefinite-delivery/indefinite-quantity or definitive). Number of contracts refers to the count of unique contract vehicles (such as IT 70),

not the count of contracts awarded to companies.


» The governmentwide effort to combat

contract duplication has begun to show

signs of progress within IT

» The top 10 contracts accounted for 36

percent of all IT dollars in fiscal 2014, and

the top 100 contracts accounted for 77

percent of all IT dollars

0

200

400

600

800

1,000

1,200

1,400

1,600

2010 2011 2012 2013 2014

MACs SACs

Estimated number of active contracts, by fiscal year

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Top 10 contractsNext 20 (#11 to #30)Next 30 (#31 to #60)Next 40 (#61 to #100)All remaining contracts

Estimated number of active contracts, by fiscal year

1,254 contracts (93 percent)

generated only 23 percent of

all IT obligations in FY14

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ALMOST 75 PERCENT OF ALL ANNUAL I.T. DOLLARS

FLOW THROUGH MULTIPLE-AWARD CONTRACTS

IT MAC spending by fiscal year

GWACs are the fastest-growing

MAC type for IT

Note: GWAC – governmentwide acquisition contract


» IT is one of the purchasing categories with

the highest share of contract dollars

awarded through MACs

» Almost two-thirds of all IT MAC dollars in

fiscal 2014 flowed through non-schedule

(enterprisewide, or agency-specific) MACs

0%

10%

20%

30%

40%

50%

60%

70%

80%

$0

$10

$20

$30

$40

$50

$60

$70

$80

2010 2011 2012 2013 2014

IT obligations

(in billions)

MAC share of total

IT spending

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Non-schedule MACs Schedule MACs GWACs

Share of IT MAC obligations, by fiscal year

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» Agencies used almost 1,000 contracts to procure IT outsourcing services in fiscal 2014

OUTSOURCING AND CONSULTING ARE THE LARGEST

SUBCATEGORIES WITHIN INFORMATION TECHNOLOGY

Overview of IT subcategories

Notes: PSC – product service code. The following PSCs are included in multiple IT subcategories: D301: IT and Telecom - Facility Operation and Maintenance; D316: IT

and Telecom – Telecommunications Network Management; D318: IT and Telecom – Integrated Hardware/Software/Services Solutions; D321: IT and Telecom – Help Desk;

D399: IT and Telecom – Other IT and Telecom; J070: Maintenance/Repair/Rebuilding Equipment/ADP Equipment/Software/Supplies/Support Equipment.

Source: Bloomberg Government proprietary federal procurement database.

$0 $25 $50 $75 $100 $125

IT Outsourcing

IT Consulting

Transport Services

Software

Hardware

Secure Identity Services

2010 2011 2012 2013 2014

IT obligations in billions, by fiscal year

FY14

obligations

(in billions)

Percentage

change,

FY13-FY14

Number of

contracts,

FY14

Top PSC

by sales,

FY14

$24.68 ▲5% 938 D399:

Other IT and Telecom

$21.46 ▼2% 718 R425:

Support Professional - Engineering/Technical

$16.51 ▲6% 696 D399:


$17.23 ▲9% 361 D399:


$10.04 ▼3% 500

5895: Miscellaneous

Communication

Equipment

$1.52 ▲73% 132

5810: Communications

Security Equipment

and Components

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TOP I.T. PRODUCT SERVICE CODES INCLUDE

ENGINEERING, TELECOM, PROGRAM MANAGEMENT

Top 10 PSCs in IT category ranked by total obligations in past five years

Note: Number of contracts refers to the count of unique contract vehicles (such as IT 70), not the count of contracts awarded to companies


» Among the top 10 PSCs in IT in fiscal 2014, the fastest-growing were Automated Data

Processing Software (7030) and Systems Development (D302)

IT obligations,

FY14 (in billions)

Percentage

change,

FY13–FY14

Number of IT

contracts, FY14

$12.18 0% 445

$11.05 ▲4% 261

$6.07 ▲1% 270

$4.08 ▲23% 162

$1.47 ▼21% 168

$1.69 ▼9% 99

$1.64 ▲12% 102

$0.47 ▼32% 93

$1.13 ▼25% 135

$1.43 ▼10% 101

$0 $20 $40 $60

R425: Support- Professional:Engineering/Technical

D399: Other IT andTelecommunications

R408: Support- Professional:Program Management/Support

7030: ADP Software

5895: Miscellaneous CommunicationEquipment

D307: IT and Telecom- IT Strategyand Architecture

D302: IT and Telecom- SystemsDevelopment

R414: Systems Engineering Services

J058: Maint/Repair/Rebuilding ofEquipment- Communication,…

D301: IT and Telecom- FacilityOperation and Maintenance

2010 2011 2012 2013 2014


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THE TOP CONTRACTS IN I.T. INCLUDE SCHEDULE 70,

SEAPORT-E, S3, SEWP IV AND ITES-2S

Top 10 contracts ranked by IT obligations in past five years


» Of the top 10 contracts by IT obligations in the past five years, only four – Schedule 70, SEWP

IV, MOBIS and Alliant Large Business – are either Federal Supply Schedules or GWACs

IT

obligations

FY14

(in billions)

Percentage

change,

FY13-FY14

Total

obligations,

FY14

(in billions)

IT share of

total contract

dollars, FY14

$6.19 ▲4% $7.47 83%

$3.24 ▲7% $4.94 66%

$0.82 ▼54% $0.88 93%

$2.44 ▲20% $2.55 96%

$1.22 ▼16% $1.29 95%

$0.88 ▼23% $1.04 85%

$1.28 0% $1.36 95%

$1.09 ▼23% $1.09 100%

$0.81 ▼1% $2.54 32%

$2.11 ▲56% $2.64 80%

$0 $10 $20 $30 $40

GSA Schedule 70

Navy SeaPort-Enhanced

Army S3

NASA SEWP IV

Army ITES-2S

DHS EAGLE I

Army AMCOM EXPRESS

Navy CoSC

GSA Schedule 874: MOBIS

GSA Alliant Large Business

2010 2011 2012 2013 2014


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DEFENSE, HOMELAND SECURITY AND HEALTH AND

HUMAN SERVICES ARE THE LARGEST I.T. BUYERS

Top 10 funding agencies ranked by total IT obligations in past five years

Notes: DISA – Defense Information Systems Agency; USAID – U.S. Agency for International Development. Number of contracts refers to the count of unique contract

vehicles (such as IT 70), not the count of contracts awarded to companies.


» Each of the top three agencies used at least 375 contracts to procure IT services and products in

fiscal 2014, signaling opportunities to reduce contract duplication and increase efficiency

IT

obligations,

FY14

(in billions)

Number of IT

contracts,

FY14

Total contract

dollars, FY14

(in billions)

IT share of

total contract

dollars, FY14

$12.35 387 $76.58 16%

$10.61 464 $88.11 12%

$6.89 375 $58.86 12%

$4.03 206 $13.25 30%

$4.32 152 $21.17 20%

$2.96 134 $19.20 15%

$2.14 89 $2.91 74%

$2.31 150 $9.12 25%

$1.81 101 $5.40 33%

$1.21 66 $3.84 31%

$0 $20 $40 $60 $80

Army

Navy

Air Force

DHS

HHS

VA

DISA

State

Treasury

USAID

2010 2011 2012 2013 2014


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TOP PRIME CONTRACTORS IN I.T. INCLUDE

LOCKHEED MARTIN AND NORTHROP GRUMMAN

Top 10 prime contractors ranked by total IT obligations in past five years


» The majority of the top 10 IT contractors experienced notable declines in IT revenue in fiscal

2014 despite an increase of 3 percent in the overall IT market last year

IT

obligations,

FY14

(in billions)

Percentage

change,

FY13-FY14

Total contract

dollars, FY14

(in billions)

IT share of

total contract

dollars, FY14

$2.82 ▼12% $32.58 9%

$2.01 ▼14% $10.55 19%

$1.99 ▼9% $15.48 13%

$2.18 ▼10% $3.36 65%

$2.55 ▲6% $2.89 88%

$1.76 ▼10% $2.61 67%

$1.80 ▲9% $3.77 48%

$1.31 ▼17% $1.91 69%

$1.16 ▼23% $12.25 9%

$1.13 ▼3% $2.04 55%

$0 $5 $10 $15

Lockheed Martin Corp.

Northrop Grumman Corp.

General Dynamics Corp.

SAIC

Hewlett-Packard Co.

Computer Sciences Corp.

Booz Allen Hamilton

Harris Corp.

Raytheon Co.

CACI International Inc.

2010 2011 2012 2013 2014


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THE INFORMATION TECHNOLOGY MARKET IS HIGHLY

CONCENTRATED

Distribution of annual IT dollars by number of prime contractors

Notes: Rankings based on annual IT obligations


» In fiscal 2014, the top 10 prime contractors won 29 percent of all IT dollars, and the top 100

contractors won two-thirds of all IT dollars

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Top 10 contractors Next 20 (#11 to #30) Next 30 (#31 to #60) Next 40 (#61 to #100) Remaining contractors

Share of IT obligations, by fiscal year

6,655 prime contractors

(99 percent) generated

only 33 percent of all IT

obligations in FY14

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FIXED-PRICE CONTRACTS DOMINATE I.T.

PROCUREMENTS ; T&M FALLING OUT OF FAVOR

Contract type usage varies within

IT subcategories Fixed-price orders on the rise

Notes: T&M – Time-and-materials. T&M includes labor hours.


» Fixed-price contracts accounted for 61

percent of all IT obligations in fiscal 2014,

up from 52 percent in fiscal 2010

» Most tech equipment is procured through

fixed-price contracts, while most tech

consulting services are procured through

cost-based contracts

0% 20% 40% 60% 80% 100%

Hardware

Software

Transport Services

IT Outsourcing

Secure Identity Services

IT Consulting

Fixed-price Cost-based T&M Other

Share of IT obligations, fiscal 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Fixed-price Cost-based T&M Other

Share of IT obligations, by fiscal year

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SMALL BUSINESSES ARE WINNING AN INCREASING

SHARE OF I.T. PRIME DOLLARS

Small-business performance varies

within IT subcategories

Annual IT obligations won by

small businesses

Note: Number of contracts refers to the count of unique contract vehicles (such as IT 70), not the count of contracts awarded to companies


0%

10%

20%

30%

40%

50%

$0

$5

$10

$15

$20

$25

2010 2011 2012 2013 2014

SB IT obligations by fiscal year

Value (in billions) SB share

of IT obligations

» IT obligations won by small businesses

reached $21 billion in fiscal 2014, an

increase of 17 percent from fiscal 2013 IT subcategory

SB IT

obligations,

FY14

(in billions)

SB share of IT

obligations,

FY14

Number of

SB IT

contracts,

FY14

IT Outsourcing $8.04 33% 510

IT Consulting $6.21 29% 317

Software $5.95 35% 194

Transport

Services $4.58 28% 380

Hardware $3.83 38% 239

Secure Identity

Services $0.42 28% 69

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ABOUT THE ANALYSTS

Miguel Garrido is a Quantitative Analyst with Bloomberg Government.

Before joining Bloomberg, he was an economic consultant for Edgeworth

Economics, where he analyzed legal disputes and regulatory matters.

Garrido graduated from Princeton University, where he majored in

economics and studied political economy.

[email protected]

+1 202 416 3514

@MGarridoDC

Paul Murphy is a Bloomberg Government Senior Data Analyst. He has

30+ years of experience analyzing contract spend data for his former

company, Eagle Eye Publishers, and since 2010 for BGOV. He brought

the first desktop contracts database to market and authored analyses

for the U.S. Small Business Administration that led to billions of dollars

in increased awards to small businesses. He creates hundreds of

custom reports annually for BGOV clients and colleagues.

[email protected]

+1 202 416 3452

@PJMUR55

mailto:[email protected]





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ABOUT BLOOMBERG GOVERNMENT

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