The Department of Homeland Security (DHS) has not had the same “significant” budget increases as other national security agencies have in the post-9/11 era, which means it has less “cushion” to react to forthcoming federal spending cuts, a pair of think-tank analysts said yesterday.
And “that’s an important element to keep in mind” for both DHS planners and contractors, said Guy Ben-Ari, the deputy director of the Defense Industrial Initiatives Group at the Center for Strategic and International Studies (CSIS). Ben-Ari, along with David Berteau, director of the DIIG, spoke yesterday a CSIS event where they released their latest industrial base report, this one entitled, The U.S. Department of Homeland Security Contract Spending and the Supporting Industrial Base.
In their analysis, the CSIS analysts show that spending by DHS on products, services, and research and development has been trending down the past three years, $14.2 billion in 2008 down to $13.6 billion in 2010. And, they say, competition for those dollars has been increasing as multiple award contract vehicles are up 18 percent annually over the past three years while single award and purchase orders are down 11 percent and 24 percent annually over that same period.
“There are high levels of competition in contract awards and those levels are growing,” Ben-Ari said. “It will remain a very competitive environment, especially taking in mind that the budget will be coming down.”
In terms of distributing its contracts among small, medium and large businesses, DHS has been consistent here over the years, the analysts say. Between 2007 and 2009, that dollar value of prime contracts going to large contractors, that is those with at least $3 billion in annual revenues, has bounced from $5.1 billion in 2007 to $5.8 billion in 2008 and $5.4 billion in 2009. There are between 85 and 90 large contractors that are getting those contracts, the analysts say.
However, the amount of contract dollars going to small businesses, that is firms with less than $20 million in annual sales, is growing, the report shows. And there are an increasing number of these small companies competing for that money, it says.
In 2007, 11,730 small companies took in $4.1 billion in contract awards whereas in 2009, 12,212 small firms garnered $4.5 billion in contract awards, CSIS says.
Compared to the Defense Department, which funnels less than 20 percent of its prime contract awards to small firms, DHS awards 30 percent of its prime contract dollars to these companies, Ben-Ari said.
“Going forward, that’s going to continue to be an emphasis,” Ben-Ari said.
The CSIS analysts also said that large companies contracting with DoD have taken a growing share of the overall prime contract defense business at the expense of the middle-tier companies. But this isn’t the case at DHS, Ben-Ari said, due to the “broad diversity of [DHS] components and the various types of activities that they pursue” and “the emphasis on competition.”
In recent years, the top 20 homeland security contractors have gone from getting about half of DHS’ prime contract business down to about one-third, and “that’s a very interesting industrial base issue for us because it really tells you there’s more players at the mid- and lower-tiers of the market,” Ben-Ari said. “It’s not necessarily the largest contractors capturing the largest share of the market.”