Study: A Snapshot of Professional Services Industry Most federal contract dollars for professional services are awarded as modifications to existing contracts, according to a study by the Center for Strategic and International Studies. “The only way you get into the market is either acquire (an existing contractor) or you’re a player on one of these multiple awards” such as GSA schedules and governmentwide acquisition contracts, said the project director, Pierre Chao. In a report issued June 5, CSIS analyzed 10 years’ worth of contracts for professional services. It found about two-thirds of the dollars in 2004 were modifications to existing contracts, Chao said. Multiple-award contracts and GSA schedules were the fastest-growing contract types, while the number of new definitive contracts has declined sharply. The median value of contract actions has dropped from $63,000 in 1995 to $30,000 in 2004. (“Median” means half the awards were higher and half were lower.) The average award in 2004 was $270,000, down from $385,000 10 years earlier. The report covers five primary categories of work: information and communications technology; professional, administrative, management support; research and development; equipment-related services such as installation, maintenance and repair; and facilities-related services. CSIS said the number of registered services contractors almost doubled from 2001 to 2004 as the government ramped up spending on defense and homeland security. In 2004 the Central Contractor Registration included 83,000 professional services companies, but only 2,000-4,000 of them had as much as $8 million in federal contracts. “There are lots of little guys doing a small amount of work,” Chao said. “…More competitors and the smaller size of contract actions implies a more competitive marketplace. You need to run harder to stay in place.” The small business share of the professional services market stayed relatively stable at 19% to 22% over the decade, the report said, while large corporations’ share increased from 37% to 49%. The researchers found mid-tier contractors – those larger than SBA’s small business size standards but under $1 billion in revenue – are being squeezed. Those companies’ market share was 44% in 1995, but fell to 29% by 2004. Chao said one reason for that is the wave of acquisitions of small and mid-sized companies by corporate giants. Stan Soloway, president of the Professional Services Council, said his members indicate “the survival size” for a government contractor used to be $150 million to $200 million in revenues, but now is closer to $1 billion. In 1995 the twentieth largest professional services contractor won $360 million in awards; by 2004 the twentieth had $1 billion. As mid-tier companies are acquired or grow into large ones, the researchers found that fewer small firms are growing into the mid-tier category. Chao said that may reflect a company’s decision to hang onto its small-business status: “Why the heck to I want to cross the threshold and go into the maelstrom? Let’s just sit here or sell out.” Although 2005 figures are incomplete, Soloway said his organization has detected a double-digit increase during the year in spending on professional, administrative and management support, or PAMS. That is not just because of the war, he said: “The growth is as big in civilian agencies as it was in DOD.” As the government requirements become more complex, Soloway said, government agencies are turning to contractors for the specialized skills they need.