- Tags : Policy
By: ProcurementIQ Analyst, Sean Windle
On May 4, President Trump signed a $1.1 trillion short-term budget bill into law to avoid a government shutdown and to fund the federal government through September. The details of this deal differ from his budget blueprint. Nonetheless, ProcurementIQ expects that many of the proposed cuts and funding increases outlined below will be on the table again this fall, when Congress and the White House hash out another high-stakes spending bill. ProcurementIQ will be updating this story.
On March 16, President Trump unveiled his budget blueprint for the coming fiscal year. While details are scant, many of the president’s proposals present a 180-degree shift in federal priorities that would have significant implications for government procurement departments. ProcurementIQ has analyzed Trump’s budget blueprint, as well as some of his other proposals, to determine their potential impacts on public procurement.
Defense, VA and Homeland Security Get a Boost
Front and center in the president’s blueprint is the call to increase the budgets of the Department of Defense (DoD), Veteran’s Affairs (VA) and Homeland Security (DHS). ProcurementIQ expects the additional budget outlays will bolster the spending power of federal procurement operators working in these agencies.
Currently, the DoD accounts for more than 50.0% of all discretionary government spending, and defense funding has been rising slowly during the past three years. Nonetheless, this growth follows significant declines between 2011 and 2015 that forced the Pentagon, which is historically known for project cost overruns, to tighten its belt and more closely examine procurement waste. Contributing to these defense reductions is the winding down of large-scale military operations in Iraq and Afghanistan, as well as sequestration, which is the provision of the Budget Control Act of 2011 that imposes across-the-board funding cuts when Congress and the White House cannot agree on more targeted reductions.
Laying out his budget blueprint, President Trump called for defense spending to rise by $54 billion in 2017, a 10.0% increase from current levels. Moreover, Trump has iterated that he would like to see the size of the active duty army increase from 475,000 troops to 540,000 troops. If congressional budget hawks sign off on the proposal, it will give procurement departments in defense agencies more funds to put toward tactical equipment and related services such as metal shells & casings, bulletproof vests, navigational equipment maintenance and aeronautical engineering services. Moreover, ProcurementIQ expects the prices of these products and services to increase during the next three years.
Along with the DoD, Trump’s budget blueprint also extends a 6.0% increase in funding to the VA. The VA operates the nation’s largest integrated health care system, with more than 1,700 hospitals, clinics, community centers, domiciliaries and other facilities, including 135 national cemeteries. The proposed budget increase, which amounts to an additional $4.4 billion, would come at a critical time for the agency, which is currently working through a massive backlog for disability claims, as well as deciding whether to overhaul or replace its 30-year-old electronic health records system (EHR), VistA. That decision isn’t expected to be finalized until July, but there are strong indications that senior VA officials are leaning toward replacing VistA with a commercial electronic medical records (EMR) software product. ProcurementIQ estimates that the price of EMR software has been declining at an annualized rate of 0.7% from 2014 to 2017 and will continue falling at an annualized rate of 1.0% through 2020. Strong demand has driven more suppliers into the market and, coupled with the availability of free EMR software, driven prices downward. With increased purchasing power and a favorable pricing climate, now is an ideal time to invest in EMR software.
In fact, the VA has expressed a strong interest in getting out of software development entirely, which isn’t a core competency, and moving to digital cloud computing for other software needs such as accounting, human resources and claims management. ProcurementIQ expects the prices for these software products to rise during the next three years, which means federal procurement officers can save money by making purchases now, during this period of modernization for the VA.
The DHS would also see a budget increase of 7.0%, or about $2.8 billion. The majority of these additional funds would be prioritized toward border security and immigration enforcement, particularly the beginning stages of the proposed wall between the United States and Mexico. The blueprint sets aside more than $300 million to hire and train 500 additional Border Patrol agents. The largest outlay, $1.5 billion, would go toward expanding the DHS’s ability to detain, transport and remove illegal immigrants, including hiring 1,000 additional Immigration and Customs Enforcement personnel. The president’s emphasis on border security and additional border agents would spur government buyers to prioritize tactical infrastructure and other border security technology in their spending. Some of these products, such as night vision equipment and surveillance cameras, are expected to decline in price in the three years to 2020. Other tactical equipment like electroshock weapons, motion detectors, flashlights and security lighting are expected to increase in price during the next three years. Additionally, construction of the wall along the southern border will require a variety of contractors and building materials suppliers specializing in fence & gate construction, cement, concrete installation, construction project management services and other related goods and services, all of which ProcurementIQ forecasts will increase in price during the next three years.
Most Government Agencies on the Fiscal Chopping Block
Tighter budgets mean that procurement officers for these agencies will have to do more with less. Therefore, data management will be key. Tools such as supply chain management software, vendor management software and contract management software provide a comprehensive view of current and potential suppliers, contracts, payments and other information. The data analytics provided by these tools decreases manual workloads, which enables government agencies to manage their procurement operations with fewer employees at lower operating costs. ProcurementIQ estimates that the prices for these software products have either been declining or have remained relatively stable during the past three years. As a result, government buyers, already equipped with significant leverage due to their organizational breadth, are in a position to negotiate favorable prices and contract terms with a solid understanding of these markets.
For agencies that need a more hands-on-approach in the transition to more strategic sourcing and cost reduction, procurement consulting and IT consulting services can provide a starting point to building a more effective and cost-efficient supply chain. Consulting services are an especially effective way for government agencies to identify excess IT spending. In fact, according to Federal Computer Week, consulting services could result in savings of up to 30.0%. For example, individual departments sometimes use different hardware models connected by a patchwork of networks, purchase their own hardware, use premium hardware or software without investigating more cost-effective alternatives or are simply reluctant to use cloud-based software due to security concerns. Consulting services would not only help reduce the agency’s technology costs, but also lower expenses due to a smaller and more consolidated inventory of IT assets to manage. Although the prices of these consulting services have been on the rise and are expected to continue increasing, government buyers can utilize their operational size to secure favorable pricing and contract terms.
The White House’s budget blueprint presents a drastic shift in federal discretionary spending. However, it must be approved by Congress, which means specific figures are likely to change as lawmakers hash out differences. Nonetheless, with Republicans controlling both houses of Congress, federal agencies will see some measure of these spending increases and cuts reflected in their budgets. Procurement departments should consider the financial and logistical impacts of these spending changes, and adjust their supply chains accordingly. With an understanding of their market’s pricing and competitive structure, government buyers can minimize the financial impacts of these and other policy changes.