Q4 Spending Statistics: Will Q4 FY18 be the Biggest Spending Spree Industry Has Seen Yet?
Grab your noisemakers and funny hats, because the countdown to the (fiscal) new year has begun! Unless you’ve been lying on a beach somewhere (jealous), you’ve probably been inundated with industry alerting you that we are a mere 60 days out from FY19.
You’ve seen the headlines:
This panic over the summer holidays and the anxiety that ensues is like clockwork for us, the GovCon-obsessed. The calendar flips to July and BOOM—pipelines are brought back from the dead, emails start flying, and proposal war rooms dissolve into organized chaos. No one in GovCon is a stranger to these seasonal trends, but this time it feels like we are all counting on a little extra Q4 magic. Naturally skeptical as we are, we felt compelled to do a little digging to find out if the Q4 hype is real.
Is the Q4 FY18 Hype Real?
Our Question: Will Q4 FY18 be the biggest spending spree industry has seen yet?
Our Method: To answer this question, The Pulse first analyzed Q4 spending statistics between fiscal year (FY) 2014 through 2018. We analyzed this data to determine general Q4 trends and identify the who, what, when, and how of Q4 spending. Next, we examined FY18 spending thus far, including isolating Q4 FY18 data, to develop a realistic picture of how much the Federal Government (FedGov) discretionary money has been spent in FY18. Last, we compared this FY18 data to the general Q4 spending trends we found. All data was mined from FPDS and Data Lab.
Our Results: Intriguing. We hope that this data provides GovCons with some insight as to what FedGov agencies they should target and engage for the remainder of FY18.
Our Disclaimer: This article is mainly for our data geeks. If this data stuff bores you, feel free to skip down to the bottom where The Pulse has provided some food for thought on where you and your BD team can still find some Q4 FY18 opportunities.
Q4 Federal Spending Statistics
In case you missed it, USASpending.gov has given itself a makeover and now has a useful counterpart (and our new favorite toy) the Data Lab. The information provided in Data Lab isn’t exactly groundbreaking, but it is helpful as another tool in the dissection of FedGov spending.
Relevant to our research, Data Lab found “seasonal trends in contract spending occurring within a single year. [Data Lab] looked at weekly spending on federal contracts, and found that spending tended to rise and fall on a monthly cadence, with roughly one small peak and one small drop per month. In addition, contract spending spiked in September, one week prior to the end of the government’s fiscal year.”
Based on this, we can see that FedGov spending does spike in Q4 - but how can GovCons use this data to save time and accurately focus their Q4 engagement?
To answer these questions, The Pulse focused on the when, who, what, and how of Q4 spending to determine Q4 spending trends.
When: When does FedGov buy the most and what is typically left over for Q4?
Who: Who does FedGov typically buy from in Q4?
What: What does the FedGov buy the most of, and the least, in Q4?
How: How does the FedGov buy these services?
The Pulse looked at the percentage of FedGov awards made prior to the start of Q4. This does not include modifications that could have been carried over from the last FY. These are technically new awards, meaning new opportunities. The benefit of understanding how much is awarded prior to Q4 helps you plan out how much of that funding pie is left, and what your actual shot is at getting a piece of the remaining bits. What we found was that FY14 through FY17 each averaged awarding ~69% of their funding prior to the start of Q4. Leaving ~30% available to GovCons for the Q4 sprint.
The Pulse evaluated the identified “contractor type” under all Q4 awards in order to assess what type of GovCons get the most attention in Q4. Our findings here are not groundbreaking. It is no surprise that Large GovCons get the biggest percentage (more than half) of the Q4 spending budget.
The Pulse analyzed the spending under the FedGov defined products and services categories, to include both the Product Service Code (PSC) and North American Industry Classification System (NAICS), to discover what your FedGov customers are buying the most, and the least, of in Q4. By understanding what products or services the FedGov is buying, you can determine if your offerings are enough to convince that customer to break out their Government purchase cards before the new (fiscal) year.
PSC Spending: Out of the five fiscal years we looked out, the PSC Category that received the least amount of love in Q4 is PSC Category: E (Physical Sciences).
Opposite of PSC Category: E is PSC Category: R (Professional, Administrative and Management Support Services). With exception of Q4 FY17, PSC Category: R seems to be the favorite child of Q4 spenders.
Here is our summarized comparison of the top five PSCs bought in Q4 compared to the other 28 PSCs:
NAICS Spending: Out of the five fiscal years we examined, the NAICS that received the most love in Q4 is NAICS 54 (Professional, Scientific, and Technical Services).
Opposite of NAICS 54 is NAICS 55 (Management of COmpanies and Enterprises) serving as the least favorite of Q4 spenders:
Here is our summarized comparison of the top five NAICS bought in Q4 compared to the other 20 NAICS:
The Pulse analyzed single and multiple vehicle awards, as well as the use of purchase cards, micro-purchases, and simplified acquisitions. By understanding how your FedGov is buying, you’ll be able to determine if you have the right tools in place to make a quick sale.
Vehicle Spending: In Q4, Single Awards - whether a delivery order, IDIQ, etc. - are the favorite by far. Surprised? So were we.
Further analysis of our data also showed that when you compare FY18 contract awards to total FY18 contract actions (modifications) - contract awards come out slightly on top each fiscal year we evaluated. This is good news because this data suggests that new opportunities - not modifications - drove the spikes at the end of each FY. This data fact was also proven by Data Lab when they explored if spending on new contracts differ from modifications over time.
Purchase Cards, Micro-Purchases, and Simplified Acquisitions: A Government-wide purchase card is typically used to make micro-purchases as it is not allowed to exceed the FAR micro-purchase threshold unless warranted by the contracting officer. In case you weren’t in the know, a micro-purchase means “a purchase of supplies or services using simplified acquisition procedures”. Simplified acquisition procedures offer one of the most flexible buying processes which makes them ideal for Q4 spending. According to some GovCon experts, simplified acquisitions this fiscal year have already exceeded spending from FY17. To assess the impact of simplified acquisitions in Q4, we looked at total purchase card payments made in Q4:
What we found is that purchase card spending just in Q4 alone makes up at least ~30% of the total FedGov fiscal year awards.
FY18 Spending So Far and How it Compares
On March 23rd, President Trump signed the Consolidated Appropriations Act of 2018 into law —a comprehensive appropriations measure that funded the FedGov $1.3T through the remainder of FY18. Almost seven months late. The budget deal included new budget caps increased by $143B in FY18 above current spending levels. Furthermore, the Omnibus Bill increased the 80/20 spending rule to allow for 25% of all spending to occur in the last month of the fiscal year.
General FY18 Spending
So far in FY18, the FedGov has spent $308B on GovCon awards. Out of the ten (10) largest FedGov spenders, only two (2) have spent 70% of their projected discretionary budget. In short, this means there is a lot of money, more than normal, still on the table for Q4 FY18.
Q4 FY18 Spending
We are one month into Q4 FY18 and the FedGov has awarded $10.66B in funding. The biggest spenders so far in Q4 FY18 are:
Wait a minute? It feels like we are missing someone. Oh that’s right, Defense. At this very moment, Defense actually finds itself out of the Top 10 Biggest Q4 Spenders, landing at #21 with only $38M in spending. *Disclaimer: We know they have been making some pretty hefty awards out there this past month. Before you throw food at us, remember award vs. time it takes to process that award matters.
So how does FY18 compare?
The total amount of funds handed out in FY18, prior to Q4, is actually the lowest out of the fiscal years we analyzed between FY14 - FY18. Yes, you heard us right.
In fact, FY17 actually had the most spending prior and during Q4 out of all the fiscal years we assessed. This is an interesting fact because the FY17 budget was signed in May 2017, even later than that of FY18, meaning FedGov got two months more in FY18 with a full budget than in FY17.
So what is the holdup?
Well, in short, spending is moving at a not so rapid pace. One could theorize that this is due to the time-consuming, broken procurement process we all have learned to love (hate). Or based on the data, we can collectively make a few more assumptions that this has more to do with undecided federal priorities, 170+ key FedGov vacancies, 13K federal jobs cut to include federal layoffs and turnovers, hiring freezes, and possibly the Administration slow-rolling spending.
Whatever the reason - The Pulse predicts that you will see a lot more of this “new" money in the new (fiscal) year, and not in the slowly closing Q4 window.
Opportunities for Q4 FY18
Our money may be on FY19, but don’t put up the gone fishin' sign just yet.
So where are the Q4 FY18 opportunities?
From our point of view, industry is currently slammed with proposals. This is good news because it means activity is happening. Also remember that only two of our FY18 Largest FedGov spenders have spent more than 70% of their projected discretionary budget. That leaves Defense, Veterans Affairs, Health and Human Service, Homeland Security, General Services Administration, Justice, Transportation, and State - just to name a few. Our friends from NACA also had some good suggestions:
"In the Omnibus bill, it added $1B to address the opioid epidemic,for a total of $4B. Congress added $10.6B in infrastructure spending for a total of $21B. Congress added $2.3B across departments to school safety issues. Commerce is still faced with the forthcoming 2020 census. Homeland Security’s wide range of opportunities means there are requirements that still need to be met – especially given the Administration’s focus on Border Security."
Furthermore, according to data recently released by the Data Lab, year after year, 6% to 8% of contract spending is obligated in the final week of the fiscal year. This means there's still a slight chance you'll be reaching for some celebratory bubbly in FY18.
Moral of the story: The end of the fiscal year is a lot like the end of the calendar year; a whole lot of hype with only a few people awake at midnight to reap the rewards.
Is there fun and money to be had? Sure.
Should you count on it? We wouldn’t.
Based on our research, we believe high expectations will only lead to low disappointments, and your P&L can’t be dependent on that final moment when the ball finally drops. However, if you're armed with some proper planning, an understanding of the Q4 trends, and little research - you can make a (fiscal) new year's resolution and get that pipeline into shape!