Landscape Is Changing for Professional Services Two-thirds of federal spending on professional services is done through modifications to existing contracts, not new contracts, according to an analysis by the Center for Strategic and International Studies. In addition, multiple award contracts are the fastest-growing source of business for service contractors, while the number of individual definitive contracts and purchase orders has declined. “To participate in the services industry now and in the future, it is mandatory for companies to compete for and participate in one or more of these multiple-award or federal schedule contract vehicles.” The CSIS report says. The report, “Structure and Dynamics of the U.S. Federal Professional Services Industrial Base,” is an annual study of the marketplace. The latest edition used procurement data for fiscal 2007, the latest full year available. “Modifications to existing contracts (definitive contracts, delivery orders, and purchase orders) represent approximately two-thirds of the market in dollar terms,” the researchers found. “This implies that in any given year, a large share of the market is already spoken for.” “…Furthermore, the competitive implications of the growth in GWAC and indefinite delivery contract types is that industry participants must now compete twice—once to qualify for the overarching contracting vehicle and again for each major task under these IDCs. Because half the market is represented by modifications to existing contracts and opportunities are reduced for winning new definitive contracts, a company that fails to win a position in one of these broad overarching vehicles has increasingly limited opportunities to enter the market, except through mergers and acquisitions.” The report also documents the continuing squeeze on mid-sized contractors – those too large to qualify as small businesses, but with less than $1 billion in revenue. Their share of the federal professional services market has slipped to 33%, from 44% in 1995. The large-business share grew from 37% to 46% in the same years, while the small-business share remained steady at 19%-21%. “[I]t seems that as a result of this trend, medium-sized companies are beginning to opt out of the federal professional services market,” the report says. Small businesses, with the advantage of set-asides and procurement goals, have held their market share through a period of consolidation in the industry and migration of business to large companies. The researchers noted that “the existing small- and disadvantaged-business set-aside laws have clearly been working in the professional services market.” The number of companies receiving professional services contracts has more than doubled since 2001, to almost 118,000, but the bulk of the new entrants have no contracts worth more than $25,000. The analysis revealed that only 2,389 companies had as much as $8 million in federal professional services revenue in 2007.