Study: GWAC business booming

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Business on governmentwide information technology contracts is booming, but it's not a guaranteed license to sell for IT vendors, according to a study released Oct. 2 by market research firm Input.

Federal agencies' spending on governmentwide acquisition contracts (GWACs) has more than doubled from $1.1 billion in fiscal 1997 to more than $2.4 billion in fiscal 2001, according to the Input study. And agencies are spending a larger part of their IT budgets buying products and services through the contracts. In aggregate, the federal government's use of GWACs has increased from 3.9 percent of spending in fiscal 1997 to 6.4 percent in fiscal 2001.

"We were surprised that the overall dollar value spent through GWACs was that high," said Chirag Shah, a federal analyst at Input. "Organizations are realizing that there are many benefits to using GWACs," including reduced administrative costs and faster turnaround time.

Civilian agencies are the primary drivers of the increase in GWAC spending, according to Input. In fiscal 2001, they accounted for 71 percent of the total spending.

The top five users of GWACs — the Transportation, Health and Human Services, Commerce, Agriculture departments and the Office of the Secretary of Defense — are also the managers of the major GWAC contracts, the Input study says. However, two GWACs managed by the General Services Administration — Millennia and Answer — are the most widely used contracts on the list.

The GSA contracts rack up the highest dollar amounts, Shah said, but GSA does not use the governmentwide contracts as much as other agencies.

Still, the booming GWAC business isn't guaranteed money for vendors. Although 135 vendors have been awarded contracts through various GWACs, the top 10 GWAC companies received more than 64 percent ($1.5 billion) of all prime contract dollars from the federal government during fiscal 2001.

Because there are typically many vendors on a single GWAC, the amount of guaranteed money is minimal. "Therefore, the sales and marketing efforts required to be successful increase substantially after the contract award as vendors vie for orders from the agencies that use the GWAC," the report says.

The Input study did not discuss reports that agencies are profiting from the fees they charge to use the governmentwide contracts. A General Accounting Office report released Aug. 26, for example, found that GSA's Federal Supply Service made a profit of more than $150 million over a three-year period.

For GSA and other agencies that oversee governmentwide contracts, the fees are intended to bring in just enough money for the managing agency to recover the costs it incurs in awarding and managing a contract.