SAMPLE PRESENTATION FOR CSIS
Four Key Questions • Where Are We? • How Did We Get Here? • Where Are We Going? • What Do We Look For?
www.csis.org | 2
Federal Government Spending and Revenue as a % of GDP 30%
25% Total USG Outlays
20% Total USG Receipts
15%
10%
Mandatory Programs
Defense Discretionary
Nondefense Discretionary
5% Net Interest
0%
Source: Office of Management and Budget, Historical Tables, Tables 8.5 and 8.7, available at http://www.whitehouse.gov/omb/budget/Historicals/; Congressional Budget Office, Budget and Economic Outlook: Fiscal Years 2013 to 2023, February 5, 2013, available at http://cbo.gov/publication/43907
www.csis.org | 6
Long Term Pressure on Discretionary Spending
Note: Topline assumes that total federal spending from 2018 to 2040 grows at 3.1 percent above GDP (the average annual growth rate planned for 2013–2017 in the FY2013 budget request).
www.csis.org | 7
Sources: Congressional Budget Office, Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2012; Office of Management and Budget, Historical Tables, February 2012. Available at http://www.whitehouse.gov/omb/budget/Historicals ; Department of Defense, National Defense Budget Estimates for Fiscal Year 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012. Independent analysis based on CBO federal spending projections from 2022-2040
Where Are We: The Current Drawdown in Context $800
Post-Korea -43%
Post-Vietnam -33%
Post-Cold War -36%
Current -31%
$700
Constant 2013 $ Billions
$600
$500
$400
$300
$200
2013-2021 Sequester
$100
1948-2012 Budget Authority $0
Source: Department of Defense, National Defense Budget Estimates for FY 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012; Congressional Budget Office, Long-Term Implications of the 2013 Future Years Defense Program, July 2012. Analysis by CSIS International Security Program
www.csis.org | 8
Department of Defense Budget, 2001-2017 FY13 Enacted, including sequestration
$800
Base Budget
$700
OCO, Actuals Constant 2013 $ Billions
$600
FY12 FYDP Initial BCA Caps
$500
PostSequestration BCA Caps
$400
$300
$200
$100
Base Budget, Actuals $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources: Department of Defense, National Defense Budget Estimates for FY 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012; Department of Defense, National Defense Budget Estimates for FY 2012 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2011.
www.csis.org | 9
Internal Cost Growth Against the Projected Topline $800
$700
Projected Defense Topline Constant 2013 $ billions
$600
$500
$400
Projected Internal Cost Growth:
Operation & Maintenance $300
• Excludes modernization • Includes 100k troop reduction in FY13 FYDP
$200
Healthcare $100
Military Personnel
$0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sources: Department of Defense, National Defense Budget Estimates for FY 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012; Clark Murdock, Kelley Sayler and Ryan Crotty, The Defense Drawdown Working Group (DDWG) and the “Cost-Capped” Methodology, (Washington, DC: CSIS, October 2012), p. ; Analysis by CSIS International Security Program.
www.csis.org | 10
After many twists and turns, the FY13 DoD topline budget was set at about $518 billion, but it remains subject to sequester, for a final level of about $478 billion FY12 Appropriations
FY13 President’s Budget
FY13 Continuing Resolution
FY13 Appropriation
FY13 Appropriation with Sequester
September 2011
February 2012
September 2012
March 22, 2013
March 27, 2013
$600 $500
$ Billions
$400
$71.4
$69.4
$71.8
$104.5
$98.8
$105.2
$69.5
$98.7
Revolving & Management Funds $64.1
$91.0 Military Construction
$300 $200 $100
Family Housing
$197.2
$208.8
$198.4
$209.0
$192.7
RDT&E Procurement
$141.8
$135.1
$142.7
$127.5
$127.5
$0 FY12 Appropriation
FY13 President's FY13 Continuing FY13 Appropriation FY13 Appropriation Budget (Feb. 2012) Resolution (Sept. (March 2013) (Including 2012) Sequester)
Source: FY13 DoD Greenbook; H.R. 933; Avascent analysis of BCA (Aug. 2011) and ATRA (Jan. 2013); OMB Sequestration Order (March 1, 2013)
Operations & Maintenance Military Personnel PRIVATE & CONFIDENTIAL | AVASCENT | 9
Decline in the base budget will hit investment accounts especially hard Effects of H.R. 933 and Sequestration on Major DoD Budget Accounts Delta, FY12 to FY13*
Overall Sequester Effect
Services’ Likely Reaction
Military Construction
-$3.1 Hardest hit among major -27.4% billion accounts in relative terms
Cancellation and delay in many new-starts
RDT&E
Each of the Services’ RDT&E -$7.3 -10.3% accounts are cut billion
Delay in new-starts; Civilian furloughs could slow T&E progress
Procurement
After sequester, only Army -$13.6 -13.0% Aircraft and Air Force Ammo billion accounts will see growth
Lower unit production in FY13; Delay and reduction in spares and support equipment buys
Operations & Maintenance
-$4.5 billion
Military Personnel
-$14.3 Not subject to sequester, -10.1% billion unlike all other major accounts
-2.3%
*Includes Avascent’s initial estimate of sequestration by Title
Congress added funds to O&M to sustain readiness even after sequester
Reduction in flying hours, etc.; 14 days of civilian furloughs; Cuts in facilities SRM; and more Reduction tied to planned reduction in endstrength, mainly in Army and USMC PRIVATE & CONFIDENTIAL | AVASCENT | 10
The FY14 request for Overseas Contingency Operations will be around $60 billion Overseas Contingency Operations (OCO) Budget $200,000 Avascent Forecast
$180,000
Sharp decline in OCO Procurement spend relative to prior years
$160,000
$ Millions
$140,000 $120,000
Largest portion of
Operations & OCO to cover Maintenance
$100,000
withdrawal costs
$80,000 $60,000 $40,000
Military Personnel
$20,000
Withdrawal of nearly all U.S. forces by end of CY 2014
FY17
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
$0
Most U.S. forces are set to be out of Afghanistan by the end of 2014, but some residual presence will remain Source: DoD through FY13; Avascent estimate in FY14 and beyond
PRIVATE & CONFIDENTIAL | AVASCENT | 11
Just as the topline has declined since 2010, so has DoD demand for contract services DoD Contracting on Services, FY02-12 Key Demand Drivers $180 $160 $140
Defense Wide Air Force Navy
Current Year $ Billions
Army
Contingency Demand • Growth in size of Army, USMC, SOCOM forces for operations in Iraq, Afghanistan
$120
• Big increase in topline budget, including large OCO appropriations
$100
• Heavy in-theater support requirements
$80 $60 $40 $20 $0
Outsourcing/Less Organic Capability • Demographic trends and cost-cutting have limited organic capacity in some areas • Increasing complexity of many technology-related requirements • Key differences in Services’ outlook on outsourcing in some areas
Source: Avascent 050 Database, using FPDS contracts data; Does not include classified contracts
PRIVATE & CONFIDENTIAL | AVASCENT | 12
Army Army Budget (Base and OCO), FY08 to FY13 Current Year $ Billions
$300 $250
All Others
$200
Military Construction RDT&E
$150
Procurement
$100
• Sharp decline in FY13 due to both sequester and drop-off in OCO funding • Roughly -7.8% decline (CAGR), FY08 to FY13
Operations & Maintenance
$50
Military Personnel
$0 FY08
FY09
FY10
FY11
FY12
FY13
Current Year $ Billions
Army Services Contracting, FY08 to FY12 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0
Healthcare Services Training Services Equipment Maintenance and Support IT and Network Services Professional Services, Admin, and Management Engineering and Technical Services Logistics
FY08
FY09
FY10
FY11
FY12
Construction and Environmental Services
• Clear decline in contract services: -7.7% CAGR, FY08-12 • OCO exposure is primary culprit behind decline in multiple service categories: IT services, Construction, Engineering, others • Strong growth in Health care and Training services PRIVATE & CONFIDENTIAL | AVASCENT | 13
Navy
Current Year $ Billions
Navy Budget (Base and OCO), FY08 to FY13 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0
All Others Military Construction RDT&E Procurement Operations & Maintenance Military Personnel FY08
FY09
FY10
FY11
FY12
• Even with USMC, DoN budget has grown far less reliant on OCO funding in recent years • With estimated sequester, DoN topline has declined around -0.6% CAGR, FY08 to FY13
FY13
Navy Services Contracting, FY08 to FY12 Current Year $ Billions
$40
Healthcare Services
$35
Training Services
$30 $25
IT and Network Services
$20
Professional Services, Admin, and Management Engineering and Technical Services Logistics
$15 $10 $5 $0
FY08
FY09
FY10
FY11
FY12
• Slight overall growth in contract services: 0.6% CAGR, FY08-12 • Significant decline in Training and Construction segments • Significant growth in Logistics and Professional services
Construction and Environmental Services PRIVATE & CONFIDENTIAL | AVASCENT | 14
Air Force
Current Year $ Billions
Air Force Budget (Base and OCO), FY08 to FY13 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0
All Others Military Construction RDT&E Procurement Operations & Maintenance Military Personnel FY08
FY09
FY10
FY11
FY12
• USAF budget has grown far less reliant on OCO funding in recent years • With estimated sequester, USAF topline has declined around -2.5% CAGR, FY08 to FY13
FY13
Current Year $ Billions
Air Force Services Contracting, FY08 to FY12 $30
All Others
$25
Construction and Environmental Services IT and Network Services
$20 $15
Professional Services, Admin, and Management Engineering and Technical Services Logistics
$10 $5 $0
FY08
FY09
FY10
FY11
FY12
Equipment Maintenance and Support
• Slight overall growth in contract services: 1.7% CAGR, FY08-12 • Growth is dominated by Equipment maintenance and Professional/Admin. services • Most other categories declining over this period: IT services, Construction, Logistics, others PRIVATE & CONFIDENTIAL | AVASCENT | 15
Defense Wide Defense Wide Budget (Base and OCO), FY08 to FY13 Current Year $ Billions
$120
All Others
$100 Military Construction
$80 $60
RDT&E
$40
Procurement
$20 $0
Operations & Maintenance FY08
FY09
FY10
FY11
FY12
FY13
• OCO continues to comprise a substantial share of Defense Wide topline (~12% in FY13) • Even with estimated sequester, Defense Wide topline has grown around 1.8% CAGR, FY08 to FY13 • Topline is highly fragmented, however
Defense Wide Services Contracting, FY08 to FY12 Current Year $ Billions
$35
All Others
$30
Professional Services, Admin, and Management
$25 $20
Engineering and Technical Services
$15
IT and Network Services
$10
• Growth in multiple categories, but especially brisk in Logistics, Professional/Admin. services, IT services, and Health care
Logistics
$5 $0
• Rapid growth in contract services: 8.6% CAGR, FY08-12
Healthcare Services FY08
FY09
FY10
FY11
FY12 PRIVATE & CONFIDENTIAL | AVASCENT | 16
Rising austerity will have direct and indirect effects on support services markets
Trend
Customer Outlook
• Reduced active endstrength
Smaller Forces • Reduced active force structure • Fewer DoD civilians
Shift in Service • Relatively greater stability in USAF and Navy than in Army Shares Aging Inventory Greater Cost Sensitivity Aim for Efficiencies
• Lower platform buy-rates • Legacy systems to stay in service longer
Effect on Services Markets
• Markets closely tied to force size are at risk of slower than average growth • USAF and Navy spending is not immune from risk, but will see pockets of stability/growth • More need for equipment support & upgrades, partly offsetting effect of smaller forces
• Emphasis on frequent re-competes • Lowest Priced Technically Acceptable (LPTA) as default acquisition strategy
• Pressure on margins
• IT and other infrastructure consolidation
• Opportunity to offer solutions that gain long-term savings via technology and process reform
• Investment for long-term savings
PRIVATE & CONFIDENTIAL | AVASCENT | 17
Growth in DoD demand for services will be much less than over the past decade CAGR, FY08-12
Logistics Support Services
3%
Est. CAGR, FY12-16
Outlook by Market Segment
• Closely tied to OCO funding for Iraq and Afghan • Drawdown affects transport and contingency logistics
-10%
Construction & Environmental
-15%
• MilCon budget is a key target for topline cuts • BRAC would yield opportunity, but politics are very difficult
-15%
Engineering Services
-3%
• Investment cuts will hurt demand for acquisition-related services, but civilian workforce cuts will limit the decline
-2%
Equipment Maintenance
4%
• Smaller fleets, competition from organic sources, but . . . • Aging inventories may hike demand for maintenance and mods
2%
IT Services
0%
• Risk from cut in Procurement $$ and overhead expenses • Opportunity could arise from investment in efficiencies
0%
Professional, Admin. and Mgt. Services
4%
• Easy target for overhead budget cuts • But cuts in civilian workforce could sustain some demand
-2%
Training Services
-1%
• Smaller force, fewer operational units, lower OCO demand • However, greater use of simulation could yield opportunity
1%
PRIVATE & CONFIDENTIAL | AVASCENT | 18
Like DoD, Civil Agencies are coming off a period of relatively healthy budget growth Largest 15 Civil Agencies by FY12 Discretionary Budget Authority CAGR, FY00 to FY12
Interior Treasury Labor Transportation NASA USDA DoE DoJ HUD DHS State (including USAID) Veterans Affairs Education HHS
$13.2 $13.2 $15.4 $17.8 $24.0 $26.3 $26.8 $38.3 $46.3 $53.2 $58.5 $67.4 $78.5 $0
Source: OMB
2.5% 3.0% 3.5% 1.5% 2.3% 2.9% 3.3% 4.3% 5.1% 10.1% 7.9% 9.0% 7.2% 4.7%
$11.3
$10
$20
$30
$40
$ Billions
$50
$60
$70
$80
$90 PRIVATE & CONFIDENTIAL | AVASCENT | 20
Civil agencies vary widely in their relative reliance on contract service support Share of Discretionary Topline Spent on Contract Services (Average, FY08-12)
High
Med.
Low
Size of Discretionary Budget (FY12) Up to $15B
From $15B to $40B
Greater than $40B
• NASA
• Energy
• Interior
• Justice
• Intel Community
• Treasury
• Transportation
• Homeland Security
Greater than 33%
Between 10% and 33%
Less than 10%
• Labor
• Veterans Affairs
• EPA
• HHS
• National Science Foundation • Social Security Administration
• Agriculture
• State and USAID
• Commerce
• Education
Source: Avascent analysis of FPDS and OMB data; Spike in FY09 from stimulus spending may deviate from average agency practice
• HUD
PRIVATE & CONFIDENTIAL | AVASCENT | 21
Department of Homeland Security Budget by Component/Program $60
$ Billions
$50
All Other
Estimated FY13 Budget After Sequester (not including Disaster Relief, Emergency Funds)
Transportation Security Administration Immigration and Customs Enforcement U.S. Coast Guard
$40 $30 $20
Customs and Border Protection
$10 $0 FY08
FY09
FY10
FY11
FY12
FY13
Federal Emergency Management Agency
• Topline in overall decline, driven by fluctuation in FEMA disaster relief • Several agencies with flat budgets (CBP, USCG, TSA, ICE) • Smaller agencies with modest growth (Secret Service, NPPD, CIS)
Demand for Contract Services $12
IT and Network Services
$10
Professional Services, Admin, and Management
$ Billions
$8
Logistics
$6 $4
Engineering and Technical Services
$2
Construction and Environmental Services
$0
All Others
FY08
FY09
FY10
FY11
FY12
• Contracts 20% to 23% of its topline in services • Overall decline in service contracting of -1.4% CAGR, FY08 to FY12 • Decline in nearly all services categories, except Logistics, driven by CBP-related facilities work
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 23
Department of Veterans Affairs Budget by Component/Program $70
$ Billions
$60 $50 $40
All Other
• Fastest growing of any Civil agency
Information Technology Systems
• Largely exempt from sequester
$30
Medical Support and Compliance
$20
Medical Facilities
• Overall growth rate of 6.9% CAGR, FY08 to FY13
$10 Medical Services
$0 FY08
FY09
FY10
FY11
FY12
FY13
Demand for Contract Services $10
Construction and Environmental Services Logistics
$ Billions
$8
IT and Network Services
• Growth in service contracting of around 8.5%, FY08 to FY12
Equipment Maintenance and Support Professional Services, Admin, and Management All Other Services
• Growth strongest in IT services, Professional/ Admin. services, Healthcare services
Healthcare Services
$6 $4 $2 $0 FY08
FY09
FY10
FY11
FY12
• Contracts roughly 15% of its topline in services
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 24
Department of State, U.S. AID and International Assistance Programs Budget by Component/Program Estimated FY13 Budget After Sequester (including OCCO funds)
$ Billions
$60 $50
International Organizations and Conferences
$40
Agency for International Development
$30
Administration of Foreign Affairs
$20
All Other
$10 $FY08
FY09
FY10
FY11
FY12
FY13
International Security Assistance
• Topline growth of around 4.5% CAGR, FY08 to FY13 • Growth driven in part by OCO funds for operations in Afghanistan and other regions; Political barriers in some regions may limit further OCO funds
Demand for Contract Services
$ Billions
$14 $12
Professional Services, Admin, and Management
$10
Engineering and Technical Services
$8
Logistics
$6 $4
Construction and Environmental Services
$2
IT and Network Services
$FY08
FY09
FY10
FY11
FY12
All Others
• Contracts roughly 22% of its topline in services • Growth in service contracting of around 5.7%, FY08 to FY12 • Growth strongest in IT services, construction, logistics, and equipment maintenance
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 25
NASA Budget by Component/Program Estimated FY13 Budget After Sequester
$20
Space Operations
$ Billions
$15
Science $10
Exploration Cross Agency Support
$5
All Other
$FY09
FY10
FY11
FY12
FY13
• FY13 Appropriation, not a CR based on FY12 levels • Topline budget declined around -3% CAGR, FY09-13 • Primary downward driver was Shuttle retirement, but many programs will see cuts (Science, CrossAgency Support, etc.)
$ Billions
Demand for Contract Services $9 $8 $7 $6 $5 $4 $3 $2 $1 $-
FY09
FY10
FY11
FY12
Engineering and Technical Services Logistics
• Contracts between 35% and 42% of its topline in services
IT and Network Services
• Decline in service contracting of -3.1% CAGR, FY09 to FY12
Professional Services, Admin, and Management Construction and Environmental Services All Others
• However, growth in many areas outside Engineering & Technical servicse
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 26
Intelligence Community Estimated IC Budget by Agency • IC budget estimated using USG disclosures and open source research
$90 $80 NRO
$70
NSA Air Force
$60
$ Billions
CIA Army
$50
NGA DIA
$40
Navy Other Civil Intel
$30
ODNI Marine Corps
$20
Other DoD $10 $-
2008
2009
2010
2011
2012
2013
• Sequester estimated at roughly 5.8%, with cuts to DoD and non-DoD agencies at prevailing sequester rates for each • Assumes significant contraction in OCO spending, along same timeline as DOD • Avascent estimates IC contracts roughly 25% to 33% of its topline for services, but agency practices vary widely • Imposition of austerity will give rise to critical dynamics: • Contracting Efficiencies: Shift to IDIQ contract vehicles; Bundling of related activities • IT Efficiencies: Cloud concepts eyed for overall savings, but security concerns will slow adoption and limit efficiencies
Source: Avascent estimate based on open source information and US Government disclosures
PRIVATE & CONFIDENTIAL | AVASCENT | 27
www.avascent.com
(202) 452-6990
PRIVATE & CONFIDENTIAL | AVASCENT | 29
www.csis.org | 2
Federal Government Spending and Revenue as a % of GDP 30%
25% Total USG Outlays
20% Total USG Receipts
15%
10%
Mandatory Programs
Defense Discretionary
Nondefense Discretionary
5% Net Interest
0%
Source: Office of Management and Budget, Historical Tables, Tables 8.5 and 8.7, available at http://www.whitehouse.gov/omb/budget/Historicals/; Congressional Budget Office, Budget and Economic Outlook: Fiscal Years 2013 to 2023, February 5, 2013, available at http://cbo.gov/publication/43907
www.csis.org | 6
Long Term Pressure on Discretionary Spending
Note: Topline assumes that total federal spending from 2018 to 2040 grows at 3.1 percent above GDP (the average annual growth rate planned for 2013–2017 in the FY2013 budget request).
www.csis.org | 7
Sources: Congressional Budget Office, Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2012; Office of Management and Budget, Historical Tables, February 2012. Available at http://www.whitehouse.gov/omb/budget/Historicals ; Department of Defense, National Defense Budget Estimates for Fiscal Year 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012. Independent analysis based on CBO federal spending projections from 2022-2040
Where Are We: The Current Drawdown in Context $800
Post-Korea -43%
Post-Vietnam -33%
Post-Cold War -36%
Current -31%
$700
Constant 2013 $ Billions
$600
$500
$400
$300
$200
2013-2021 Sequester
$100
1948-2012 Budget Authority $0
Source: Department of Defense, National Defense Budget Estimates for FY 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012; Congressional Budget Office, Long-Term Implications of the 2013 Future Years Defense Program, July 2012. Analysis by CSIS International Security Program
www.csis.org | 8
Department of Defense Budget, 2001-2017 FY13 Enacted, including sequestration
$800
Base Budget
$700
OCO, Actuals Constant 2013 $ Billions
$600
FY12 FYDP Initial BCA Caps
$500
PostSequestration BCA Caps
$400
$300
$200
$100
Base Budget, Actuals $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources: Department of Defense, National Defense Budget Estimates for FY 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012; Department of Defense, National Defense Budget Estimates for FY 2012 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2011.
www.csis.org | 9
Internal Cost Growth Against the Projected Topline $800
$700
Projected Defense Topline Constant 2013 $ billions
$600
$500
$400
Projected Internal Cost Growth:
Operation & Maintenance $300
• Excludes modernization • Includes 100k troop reduction in FY13 FYDP
$200
Healthcare $100
Military Personnel
$0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sources: Department of Defense, National Defense Budget Estimates for FY 2013 (Green Book), Office of the Under Secretary of Defense (Comptroller), March 2012; Clark Murdock, Kelley Sayler and Ryan Crotty, The Defense Drawdown Working Group (DDWG) and the “Cost-Capped” Methodology, (Washington, DC: CSIS, October 2012), p. ; Analysis by CSIS International Security Program.
www.csis.org | 10
After many twists and turns, the FY13 DoD topline budget was set at about $518 billion, but it remains subject to sequester, for a final level of about $478 billion FY12 Appropriations
FY13 President’s Budget
FY13 Continuing Resolution
FY13 Appropriation
FY13 Appropriation with Sequester
September 2011
February 2012
September 2012
March 22, 2013
March 27, 2013
$600 $500
$ Billions
$400
$71.4
$69.4
$71.8
$104.5
$98.8
$105.2
$69.5
$98.7
Revolving & Management Funds $64.1
$91.0 Military Construction
$300 $200 $100
Family Housing
$197.2
$208.8
$198.4
$209.0
$192.7
RDT&E Procurement
$141.8
$135.1
$142.7
$127.5
$127.5
$0 FY12 Appropriation
FY13 President's FY13 Continuing FY13 Appropriation FY13 Appropriation Budget (Feb. 2012) Resolution (Sept. (March 2013) (Including 2012) Sequester)
Source: FY13 DoD Greenbook; H.R. 933; Avascent analysis of BCA (Aug. 2011) and ATRA (Jan. 2013); OMB Sequestration Order (March 1, 2013)
Operations & Maintenance Military Personnel PRIVATE & CONFIDENTIAL | AVASCENT | 9
Decline in the base budget will hit investment accounts especially hard Effects of H.R. 933 and Sequestration on Major DoD Budget Accounts Delta, FY12 to FY13*
Overall Sequester Effect
Services’ Likely Reaction
Military Construction
-$3.1 Hardest hit among major -27.4% billion accounts in relative terms
Cancellation and delay in many new-starts
RDT&E
Each of the Services’ RDT&E -$7.3 -10.3% accounts are cut billion
Delay in new-starts; Civilian furloughs could slow T&E progress
Procurement
After sequester, only Army -$13.6 -13.0% Aircraft and Air Force Ammo billion accounts will see growth
Lower unit production in FY13; Delay and reduction in spares and support equipment buys
Operations & Maintenance
-$4.5 billion
Military Personnel
-$14.3 Not subject to sequester, -10.1% billion unlike all other major accounts
-2.3%
*Includes Avascent’s initial estimate of sequestration by Title
Congress added funds to O&M to sustain readiness even after sequester
Reduction in flying hours, etc.; 14 days of civilian furloughs; Cuts in facilities SRM; and more Reduction tied to planned reduction in endstrength, mainly in Army and USMC PRIVATE & CONFIDENTIAL | AVASCENT | 10
The FY14 request for Overseas Contingency Operations will be around $60 billion Overseas Contingency Operations (OCO) Budget $200,000 Avascent Forecast
$180,000
Sharp decline in OCO Procurement spend relative to prior years
$160,000
$ Millions
$140,000 $120,000
Largest portion of
Operations & OCO to cover Maintenance
$100,000
withdrawal costs
$80,000 $60,000 $40,000
Military Personnel
$20,000
Withdrawal of nearly all U.S. forces by end of CY 2014
FY17
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
$0
Most U.S. forces are set to be out of Afghanistan by the end of 2014, but some residual presence will remain Source: DoD through FY13; Avascent estimate in FY14 and beyond
PRIVATE & CONFIDENTIAL | AVASCENT | 11
Just as the topline has declined since 2010, so has DoD demand for contract services DoD Contracting on Services, FY02-12 Key Demand Drivers $180 $160 $140
Defense Wide Air Force Navy
Current Year $ Billions
Army
Contingency Demand • Growth in size of Army, USMC, SOCOM forces for operations in Iraq, Afghanistan
$120
• Big increase in topline budget, including large OCO appropriations
$100
• Heavy in-theater support requirements
$80 $60 $40 $20 $0
Outsourcing/Less Organic Capability • Demographic trends and cost-cutting have limited organic capacity in some areas • Increasing complexity of many technology-related requirements • Key differences in Services’ outlook on outsourcing in some areas
Source: Avascent 050 Database, using FPDS contracts data; Does not include classified contracts
PRIVATE & CONFIDENTIAL | AVASCENT | 12
Army Army Budget (Base and OCO), FY08 to FY13 Current Year $ Billions
$300 $250
All Others
$200
Military Construction RDT&E
$150
Procurement
$100
• Sharp decline in FY13 due to both sequester and drop-off in OCO funding • Roughly -7.8% decline (CAGR), FY08 to FY13
Operations & Maintenance
$50
Military Personnel
$0 FY08
FY09
FY10
FY11
FY12
FY13
Current Year $ Billions
Army Services Contracting, FY08 to FY12 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0
Healthcare Services Training Services Equipment Maintenance and Support IT and Network Services Professional Services, Admin, and Management Engineering and Technical Services Logistics
FY08
FY09
FY10
FY11
FY12
Construction and Environmental Services
• Clear decline in contract services: -7.7% CAGR, FY08-12 • OCO exposure is primary culprit behind decline in multiple service categories: IT services, Construction, Engineering, others • Strong growth in Health care and Training services PRIVATE & CONFIDENTIAL | AVASCENT | 13
Navy
Current Year $ Billions
Navy Budget (Base and OCO), FY08 to FY13 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0
All Others Military Construction RDT&E Procurement Operations & Maintenance Military Personnel FY08
FY09
FY10
FY11
FY12
• Even with USMC, DoN budget has grown far less reliant on OCO funding in recent years • With estimated sequester, DoN topline has declined around -0.6% CAGR, FY08 to FY13
FY13
Navy Services Contracting, FY08 to FY12 Current Year $ Billions
$40
Healthcare Services
$35
Training Services
$30 $25
IT and Network Services
$20
Professional Services, Admin, and Management Engineering and Technical Services Logistics
$15 $10 $5 $0
FY08
FY09
FY10
FY11
FY12
• Slight overall growth in contract services: 0.6% CAGR, FY08-12 • Significant decline in Training and Construction segments • Significant growth in Logistics and Professional services
Construction and Environmental Services PRIVATE & CONFIDENTIAL | AVASCENT | 14
Air Force
Current Year $ Billions
Air Force Budget (Base and OCO), FY08 to FY13 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0
All Others Military Construction RDT&E Procurement Operations & Maintenance Military Personnel FY08
FY09
FY10
FY11
FY12
• USAF budget has grown far less reliant on OCO funding in recent years • With estimated sequester, USAF topline has declined around -2.5% CAGR, FY08 to FY13
FY13
Current Year $ Billions
Air Force Services Contracting, FY08 to FY12 $30
All Others
$25
Construction and Environmental Services IT and Network Services
$20 $15
Professional Services, Admin, and Management Engineering and Technical Services Logistics
$10 $5 $0
FY08
FY09
FY10
FY11
FY12
Equipment Maintenance and Support
• Slight overall growth in contract services: 1.7% CAGR, FY08-12 • Growth is dominated by Equipment maintenance and Professional/Admin. services • Most other categories declining over this period: IT services, Construction, Logistics, others PRIVATE & CONFIDENTIAL | AVASCENT | 15
Defense Wide Defense Wide Budget (Base and OCO), FY08 to FY13 Current Year $ Billions
$120
All Others
$100 Military Construction
$80 $60
RDT&E
$40
Procurement
$20 $0
Operations & Maintenance FY08
FY09
FY10
FY11
FY12
FY13
• OCO continues to comprise a substantial share of Defense Wide topline (~12% in FY13) • Even with estimated sequester, Defense Wide topline has grown around 1.8% CAGR, FY08 to FY13 • Topline is highly fragmented, however
Defense Wide Services Contracting, FY08 to FY12 Current Year $ Billions
$35
All Others
$30
Professional Services, Admin, and Management
$25 $20
Engineering and Technical Services
$15
IT and Network Services
$10
• Growth in multiple categories, but especially brisk in Logistics, Professional/Admin. services, IT services, and Health care
Logistics
$5 $0
• Rapid growth in contract services: 8.6% CAGR, FY08-12
Healthcare Services FY08
FY09
FY10
FY11
FY12 PRIVATE & CONFIDENTIAL | AVASCENT | 16
Rising austerity will have direct and indirect effects on support services markets
Trend
Customer Outlook
• Reduced active endstrength
Smaller Forces • Reduced active force structure • Fewer DoD civilians
Shift in Service • Relatively greater stability in USAF and Navy than in Army Shares Aging Inventory Greater Cost Sensitivity Aim for Efficiencies
• Lower platform buy-rates • Legacy systems to stay in service longer
Effect on Services Markets
• Markets closely tied to force size are at risk of slower than average growth • USAF and Navy spending is not immune from risk, but will see pockets of stability/growth • More need for equipment support & upgrades, partly offsetting effect of smaller forces
• Emphasis on frequent re-competes • Lowest Priced Technically Acceptable (LPTA) as default acquisition strategy
• Pressure on margins
• IT and other infrastructure consolidation
• Opportunity to offer solutions that gain long-term savings via technology and process reform
• Investment for long-term savings
PRIVATE & CONFIDENTIAL | AVASCENT | 17
Growth in DoD demand for services will be much less than over the past decade CAGR, FY08-12
Logistics Support Services
3%
Est. CAGR, FY12-16
Outlook by Market Segment
• Closely tied to OCO funding for Iraq and Afghan • Drawdown affects transport and contingency logistics
-10%
Construction & Environmental
-15%
• MilCon budget is a key target for topline cuts • BRAC would yield opportunity, but politics are very difficult
-15%
Engineering Services
-3%
• Investment cuts will hurt demand for acquisition-related services, but civilian workforce cuts will limit the decline
-2%
Equipment Maintenance
4%
• Smaller fleets, competition from organic sources, but . . . • Aging inventories may hike demand for maintenance and mods
2%
IT Services
0%
• Risk from cut in Procurement $$ and overhead expenses • Opportunity could arise from investment in efficiencies
0%
Professional, Admin. and Mgt. Services
4%
• Easy target for overhead budget cuts • But cuts in civilian workforce could sustain some demand
-2%
Training Services
-1%
• Smaller force, fewer operational units, lower OCO demand • However, greater use of simulation could yield opportunity
1%
PRIVATE & CONFIDENTIAL | AVASCENT | 18
Like DoD, Civil Agencies are coming off a period of relatively healthy budget growth Largest 15 Civil Agencies by FY12 Discretionary Budget Authority CAGR, FY00 to FY12
Interior Treasury Labor Transportation NASA USDA DoE DoJ HUD DHS State (including USAID) Veterans Affairs Education HHS
$13.2 $13.2 $15.4 $17.8 $24.0 $26.3 $26.8 $38.3 $46.3 $53.2 $58.5 $67.4 $78.5 $0
Source: OMB
2.5% 3.0% 3.5% 1.5% 2.3% 2.9% 3.3% 4.3% 5.1% 10.1% 7.9% 9.0% 7.2% 4.7%
$11.3
$10
$20
$30
$40
$ Billions
$50
$60
$70
$80
$90 PRIVATE & CONFIDENTIAL | AVASCENT | 20
Civil agencies vary widely in their relative reliance on contract service support Share of Discretionary Topline Spent on Contract Services (Average, FY08-12)
High
Med.
Low
Size of Discretionary Budget (FY12) Up to $15B
From $15B to $40B
Greater than $40B
• NASA
• Energy
• Interior
• Justice
• Intel Community
• Treasury
• Transportation
• Homeland Security
Greater than 33%
Between 10% and 33%
Less than 10%
• Labor
• Veterans Affairs
• EPA
• HHS
• National Science Foundation • Social Security Administration
• Agriculture
• State and USAID
• Commerce
• Education
Source: Avascent analysis of FPDS and OMB data; Spike in FY09 from stimulus spending may deviate from average agency practice
• HUD
PRIVATE & CONFIDENTIAL | AVASCENT | 21
Department of Homeland Security Budget by Component/Program $60
$ Billions
$50
All Other
Estimated FY13 Budget After Sequester (not including Disaster Relief, Emergency Funds)
Transportation Security Administration Immigration and Customs Enforcement U.S. Coast Guard
$40 $30 $20
Customs and Border Protection
$10 $0 FY08
FY09
FY10
FY11
FY12
FY13
Federal Emergency Management Agency
• Topline in overall decline, driven by fluctuation in FEMA disaster relief • Several agencies with flat budgets (CBP, USCG, TSA, ICE) • Smaller agencies with modest growth (Secret Service, NPPD, CIS)
Demand for Contract Services $12
IT and Network Services
$10
Professional Services, Admin, and Management
$ Billions
$8
Logistics
$6 $4
Engineering and Technical Services
$2
Construction and Environmental Services
$0
All Others
FY08
FY09
FY10
FY11
FY12
• Contracts 20% to 23% of its topline in services • Overall decline in service contracting of -1.4% CAGR, FY08 to FY12 • Decline in nearly all services categories, except Logistics, driven by CBP-related facilities work
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 23
Department of Veterans Affairs Budget by Component/Program $70
$ Billions
$60 $50 $40
All Other
• Fastest growing of any Civil agency
Information Technology Systems
• Largely exempt from sequester
$30
Medical Support and Compliance
$20
Medical Facilities
• Overall growth rate of 6.9% CAGR, FY08 to FY13
$10 Medical Services
$0 FY08
FY09
FY10
FY11
FY12
FY13
Demand for Contract Services $10
Construction and Environmental Services Logistics
$ Billions
$8
IT and Network Services
• Growth in service contracting of around 8.5%, FY08 to FY12
Equipment Maintenance and Support Professional Services, Admin, and Management All Other Services
• Growth strongest in IT services, Professional/ Admin. services, Healthcare services
Healthcare Services
$6 $4 $2 $0 FY08
FY09
FY10
FY11
FY12
• Contracts roughly 15% of its topline in services
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 24
Department of State, U.S. AID and International Assistance Programs Budget by Component/Program Estimated FY13 Budget After Sequester (including OCCO funds)
$ Billions
$60 $50
International Organizations and Conferences
$40
Agency for International Development
$30
Administration of Foreign Affairs
$20
All Other
$10 $FY08
FY09
FY10
FY11
FY12
FY13
International Security Assistance
• Topline growth of around 4.5% CAGR, FY08 to FY13 • Growth driven in part by OCO funds for operations in Afghanistan and other regions; Political barriers in some regions may limit further OCO funds
Demand for Contract Services
$ Billions
$14 $12
Professional Services, Admin, and Management
$10
Engineering and Technical Services
$8
Logistics
$6 $4
Construction and Environmental Services
$2
IT and Network Services
$FY08
FY09
FY10
FY11
FY12
All Others
• Contracts roughly 22% of its topline in services • Growth in service contracting of around 5.7%, FY08 to FY12 • Growth strongest in IT services, construction, logistics, and equipment maintenance
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 25
NASA Budget by Component/Program Estimated FY13 Budget After Sequester
$20
Space Operations
$ Billions
$15
Science $10
Exploration Cross Agency Support
$5
All Other
$FY09
FY10
FY11
FY12
FY13
• FY13 Appropriation, not a CR based on FY12 levels • Topline budget declined around -3% CAGR, FY09-13 • Primary downward driver was Shuttle retirement, but many programs will see cuts (Science, CrossAgency Support, etc.)
$ Billions
Demand for Contract Services $9 $8 $7 $6 $5 $4 $3 $2 $1 $-
FY09
FY10
FY11
FY12
Engineering and Technical Services Logistics
• Contracts between 35% and 42% of its topline in services
IT and Network Services
• Decline in service contracting of -3.1% CAGR, FY09 to FY12
Professional Services, Admin, and Management Construction and Environmental Services All Others
• However, growth in many areas outside Engineering & Technical servicse
Source: Avascent analysis of OMB and FPDS data
PRIVATE & CONFIDENTIAL | AVASCENT | 26
Intelligence Community Estimated IC Budget by Agency • IC budget estimated using USG disclosures and open source research
$90 $80 NRO
$70
NSA Air Force
$60
$ Billions
CIA Army
$50
NGA DIA
$40
Navy Other Civil Intel
$30
ODNI Marine Corps
$20
Other DoD $10 $-
2008
2009
2010
2011
2012
2013
• Sequester estimated at roughly 5.8%, with cuts to DoD and non-DoD agencies at prevailing sequester rates for each • Assumes significant contraction in OCO spending, along same timeline as DOD • Avascent estimates IC contracts roughly 25% to 33% of its topline for services, but agency practices vary widely • Imposition of austerity will give rise to critical dynamics: • Contracting Efficiencies: Shift to IDIQ contract vehicles; Bundling of related activities • IT Efficiencies: Cloud concepts eyed for overall savings, but security concerns will slow adoption and limit efficiencies
Source: Avascent estimate based on open source information and US Government disclosures
PRIVATE & CONFIDENTIAL | AVASCENT | 27
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PRIVATE & CONFIDENTIAL | AVASCENT | 29
