U.S. government spending on contracts fell 3.1 percent last year, the biggest one-year decline since 1997, according to a Bloomberg Government study.
Contractors such as armored vehicle-maker Oshkosh Corp. (OSK:US) suffered the most as the Iraq war ended and troops continued to withdraw from Afghanistan, according to the report ranking the top 200 federal suppliers. Booz Allen Hamilton Holding Corp. (BAH:US), a top cybersecurity vendor, was among the companies that advanced.
The slip in awards underscores the shifting landscape for contractors, which are now dealing with the added pressure of automatic spending cuts known as sequestration. The government spent $516 billion on contracts in fiscal 2012, compared with $533 billion a year earlier, according to the study.
“After a decade of gains for contractors, this has become a decade of retrenchment,” said Brian Friel, an analyst at Bloomberg Industries in Washington and lead author of the study. “Even before sequestration, these companies started repositioning themselves for tighter federal budgets and limited areas of growth.”
The automatic cuts, which began March 1, will reduce budgets by as much as $1.2 trillion over nine years if President Barack Obama and U.S. lawmakers fail to agree on a broader deficit-reduction strategy.
Last year’s decline compares with a 5.5 percent drop in fiscal 1997, when contract spending fell $12 billion from the previous year to $203 billion, according to data compiled by Bloomberg. That drop came after agreements between President Bill Clinton and then-House Speaker Newt Gingrich to reduce the deficit. The Cold War’s end also eroded support for increased military spending.
The BGOV200 study published today ranks the leading contractors by their unclassified awards from government agencies in the year that ended Sept. 30. The study counts only prime contracts, which are awarded directly from an agency.
Among the top 10 contractors, Chicago-based Boeing Co. (BA:US) gained the most. Its awards jumped 37 percent to $30.3 billion in fiscal 2012 from the prior year, according to data compiled by Bloomberg.
The increase for Boeing, which kept its No. 2 ranking behind Bethesda, Maryland-based Lockheed Martin Corp. (LMT:US), was driven by a $4.2 billion order for F-15 jets from Saudi Arabia. The agreement counts as a U.S. contract because the Pentagon manages such foreign arms sales.
“In this time of the current downturn in U.S. defense spending, the strength of defense firms will be among those that can secure international sales,” Dan Beck, a Boeing spokesman, said in a March phone interview.
Lockheed’s awards fell 14 percent to $36.9 billion in fiscal 2012 from the previous year.
The top 10 federal contractors, a group that includes No. 3 General Dynamics Corp. (GD:US), based in Falls Church, Virginia, and No. 4 Raytheon Co. (RTN:US), based in Waltham, Massachusetts, defended their turf last year. The top 10 had 28 percent of the total spending on contracts, matching their market share the previous year.
“Most of the top defense prime contractors have diverse contract portfolios across the military services and civilian agencies, enabling them to weather cuts in particular programs,” Bloomberg’s Friel said.
There was less stability in the lower tiers of government suppliers. Houston-based KBR Inc. (KBR:US), which managed dining halls and handled logistics for troops in Iraq, fell in the rankings the most, to No. 125 from No. 30.
Oshkosh, based in Oshkosh, Wisconsin, plunged to the 44th spot from No. 11 in fiscal 2011. Lisle, Illinois-based Navistar International Corp. (NAV:US), also a military truck maker, dropped to No. 58 from No. 43.
Many of the companies that climbed the rankings benefited from areas less affected by cuts to contract spending. Those sectors include space vehicles, drones, health-care information technology and cybersecurity, according to the study.
General Atomics, the San Diego-based maker of the Reaper drone, rose four spots to No. 28. CGI Group Inc. (GIB:US), a health information technology company based in Montreal, advanced 10 places to No. 67.
McLean, Virginia-based Booz Allen, identified last year by Bloomberg Government as the top Defense Department cybersecurity provider, increased its awards to $4 billion from $3.9 billion the prior year. It rose to 13th in the ranking from 16th.
Two new entrants to the BGOV200 benefited from new opportunities at the National Aeronautics and Space Administration. The agency retired the shuttle program in 2011 and turned to private companies for cargo deliveries to the International Space Station.
Space Explorations Technologies Corp., known as SpaceX and led by billionaire Elon Musk, debuted at No. 155 after becoming the first company to dock a commercial craft at the station last year.
The Hawthorne, California-based company has a $1.6 billion contract for cargo deliveries to the station. Dulles, Virginia-based Orbital Sciences Corp. (ORB:US), ranked 93rd, has a similar deal valued at $1.9 billion.
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