Structure and Dynamics of the U.S. Federal Services Industrial Base, 2000-2010
November 23, 2011
The U.S. government has a permanent and, until recently, growing reliance on contracts with the private sector for a wide range of services. For the past six years, the Defense-Industrial Initiatives Group (DIIG) at the Center for Strategic and International Studies (CSIS) has tracked the trends driving the services industry. For the first time since the initiation of this project in 2005, this report analyzes the trends for all services through 2010, the most recent full fiscal year for which reliable data from the Federal Procurement Data System (FPDS) are available. To account for the effects of inflation, all dollar figures, with the exception of thresholds used to judge contract size, are in 2010 dollars.
Federal services contracting increased from $159 billion in 2000 to $333 billion in 2010 – an overall growth 109 percent. The compound annual growth rate (CAGR) for the 10-year period was 7.6 percent, though for the last five years examined (2006-2010) this growth slowed to 4.7 percent per year. The largest year-on-year growth in services spending occurred between 2002 and 2003, largely driven by service contracts awarded by the Department of Defense. However, 2010 was the first year in the 2000-2010 timeframe that federal spending on service contracts did not grow; instead, it decreased by some $10 billion.
As a share of total federal contract spending, services accounted for 62 percent in 2010, slightly up from 61 percent in 2009 and higher than at its relative low point of 57 percent of federal contract spending in 2008. At the policy level, recent years have witnessed a growing awareness on the part of policymakers of the industry’s magnitude and importance. Congress, the media, and voices inside the executive branch have raised concerns over the government’s reliance on, and the roles of, private sector contractors. In addition, as U.S. commitments in Iraq and Afghanistan wind down and as the government commits to additional budget cuts, the demand for some service areas – as well as the ability to maintain current spending levels – could diminish.