Being next door to Washington, D.C., might seem like a curse when it comes to traffic and scandal, but it is a blessing for Maryland in at least one sense:
The state's businesses do a whopping commerce with the federal government.
The amount of money the feds spend in Maryland each year on salaries and products continues to almost equal the annual state budget. In 1997, the most recent year for which statistics are available, federal procurement, salaries and wages totaled $16 billion -- compared to a state budget of $16.6 billion.
Federal spending in Maryland was up slightly from the year before, and 1998 probably held to a similar level, experts say. The consensus for the coming year: more of the same.
Even without dramatic growth, government business remains good business -- for the right kind of company in the right market.
"It's a better time for large contractors than it is for small contractors," said Paul Murphy of Eagle Eye Publishing, a Vienna, Va., procurement research firm.
One reason: The government is consolidating more of its small contracts into large jobs that only big companies can handle. Last year, for instance, the National Aeronautics and Space Administration gathered all its jobs managing unmanned satellites, which hd been handled at five research centers, into a gigantic Consolidated Space Operations Contract. The space operations contract -- worth more than $3 billion over the next decade -- is so big that only the world's two largest aerospace companies, Boeing Co. and Lockheed Martin Corp., were left competing for it. AlliedSignal Technical Services Corp. of Columbia had handled such jobs at the Goddard Space Flight Center in Greenbelt since the late 1950s, and had to join forces with one of the big competitors and hope its team got picked.
AlliedSignal chose Lockheed Martin's team, which won the contract, so the company will not only continue but possibly expand its work with NASA. That kind of all-or-nothing scenario is daunting for smaller companies, Murphy said.
"It tends to prevent a lot of small businesses from bidding," he said.
Another factor that can work against smaller contractors is the "schedule contract," which is part of the Clinton administration's effort to streamline government business. Instead of putting out requests for proposals and taking bids every time it needs to buy an item -- computer keyboards, for example -- an agency approves a list of contractors who are qualified to supply the product.
"Companies that become adept at this can shorten the [business] cycle. They don't have to wait for a solicitation to come out and then read about it in Commerce Business Daily," said Larry Davis at Aronson, Fetridge and Weigle, a Rockville company that advises government contractors.
Even better, when a company wins a place on a General Services Administration schedule contract, it can sell to any federal agency. For example, the GSA's information technology schedule has about 1,400 companies that define their products and put prices on them, and any agency can order from one of those companies, said Dick White, president of Wood River Technologies, a Sun Valley, Idaho, firm that operates a Web site for federal vendors.
"But what happens is that they go to the big [contractors] because the big ones have the names like IBM, and the little company gets squeezed out," White said. "Furthermore, they're supposed to go to three vendors on the list, but in reality they don't; they go to their favorite vendor and get around competition."
Use of the schedule contract also makes federal procurement more of a marketing operation, where the approved contractors drum up business by peddling their products to various agencies.
"Companies are shifting more resources to sales, doing a lot more telephone calling and doorknob pulling," said Murphy of Eagle Eye Publishing. "This benefits large contractors because they have more resources to devote to this -- more feet on the street, more people they can put on the phones, bigger advertising budgets."
As a result, many smaller companies find that their only hope for staying competitive is to merge or to be acquired by a bigger player. White, who runs the procurement Web site, said he believes that consolidation will continue to be a trend in 1999.
The Internet is one of the few factors that helps smaller companies stay competitive, White said. As the government conducts more of its commerce electronically, nimble companies with a core of talented people can pounce on opportunities, he said.
The best opportunities for such companies are likely to be in information technology, said Davis.
"That seems to be by far the most active sector," he said.
Defense contracting, on the other hand, has continued a gentle decline in Maryland. The nearly $3.9 billion in defense procurement logged by the state's companies in 1997 was down from almost $4.1 billion the year before, but Maryland has seen less fall-off than many states -- thanks, in part, to its proximity to Washington.
Nondefense procurement rose slightly, to almost $4.6 billion in 1997 from just more than $4.4 billion the year before, and experts said that trend is likely to continue.
The government will be sending an increasing amount of its work to the private sector, White says, which means that even in a time of frugal budgets, the federal contracting business is "as good as it ever was. It's hard to learn how to play the game, but once you do, you can make a lot of money."
Pub Date: 01/24/99