Contract Dollars Shrink in Obama Budget President Obama’s 2011 budget would cut contract spending by nearly 5%, according to an analysis by the research firm FedSources. Insourcing and declining spending under the Recovery Act are shrinking the dollars available to contractors, according to FedSources vice president Ray Bjorklund. “What we find is not a pretty message,” he said in an interview. Since many new companies have entered the federal market trying to replace revenue lost in the recession, and few contractors are ready to walk away from the market, Bjorklund warned, “Competition is going to heat up. That’s going to make life a bit tougher.” The president’s $3.8 billion budget proposal, released in February, calls for a three-year freeze on non-security discretionary spending. Obama has also set a goal of reducing contract spending by 7% during the next two years. But FedSources found the budget’s line items add up to a 4.8% reduction in dollars available to contractors during 2011, amounting to a $36 billion cut. Congress makes the final decisions on federal appropriations and many members are already lining up to rescue their favorite programs from the president’s budget ax. The Defense and Homeland Security departments are among those outlining the most aggressive insourcing efforts. DOD asks for authority to hire 19,000 additional civilian personnel, most of them to replace contractors. But given the cumbersome federal hiring process, Bjorklund says the department will have trouble bringing that many people aboard in a single year. Homeland Security is moving to beef up its staff following congressional complaints that the agency had ceded too many critical functions to contractors. “The most meaningful cuts for contractors are at the headquarters level,” Bjorklund said. But DHS is also adding Border Patrol officers, Customs agents and Transportation Security Administration personnel to replace contractors. Direct contract spending under the Recovery Act will begin to run its course in fiscal 2011. “It was a flash in the pan, although it was a big flash,” Bjorklund said. The decreases will be sharpest in construction and renovation spending. According to the budget proposal, the Agriculture Department plans to turn back a big chunk of Recovery Act money that was to be used to modernize its laboratories and other facilities, because the department says it cannot use the money.