Interview transcript:

 

Stephanie Kostro It is the end of the calendar year, beginning of the government fiscal year. And this is the time of year when a lot of companies take a step back and evaluate their business strategy and their planning for the next few years. We see a lot folks having off-sites in December or in January to do some of this strategic planning and I’ll be frank with you, I think a lot people will be happy to see 2025 end. And they will celebrate the new year in all sorts of ways, just because of what they’ve been through this year. If your listeners can harken back to earlier this year, the efficiency initiatives really did a number on a lot of the business plans that had been developed among government contracting companies. Some of them had massive de-scoping of their contracts. Some of them had contract terminations. Some, particularly those who worked for agencies like U.S. Agency for International Development, and the Department of Education, some at Health and Human Services really saw a diminution of their planned objectives for throughout the year. And so as we go into the December and January planning cycle for these companies, what they’re really looking for are signs from the government that there is work coming as they start to think through what calendar ’26 looks like. And they start to do their resource planning for personnel and for bid teams to put together proposals. That’s really what they are looking for. And I will have to say, Terry, earlier this year. PSC, the Professional Services Council, we represent services and solutions providers. And typically every year we put together something called our business forecast, which looks at our scorecard, which looks at all of the web-based procurement forecasts put out by agencies. And we would look at tens of agencies and their forecasts and we would rate them based on 15 key attributes, which we developed in industry, about what is useful for those forecasts. This year in 2025, we made the decision that instead of putting out our seventh annual forecast, we skipped this year. The forecasts just weren’t there, and they’re still not there.

Terry Gerton So how is it that agencies put those forecasts out, and what do they base it on? And I guess the third part of that question is, why aren’t they there?

Stephanie Kostro This was a mandate from, among others, from the Office of Federal Procurement Policy, which is a White House office that said, hey, agencies, to the extent that you can, put out forecasts on your websites. And it was really to help drive new companies to join the federal marketplace and to keep those companies that are part of the GovCon community interested. If you could look at a website and say, okay, there is an opportunity coming up in Q1, Q2, Q3, and let’s build towards that opportunity. What happened earlier this year is a lot of those websites went dark. I think it was because as part of the efficiency initiative, it was no longer a useful tool because things were moving very, very quickly. What I find interesting though, is that those websites are still dark. They’re still not there. And so I’m not entirely sure how our government contracting community can put together a reliable business strategy for 2026 and beyond in the absence of that information.

Terry Gerton Well, some estimates are that the contracting workforce itself has been reduced by over 25%. Are we just missing the people who used to do this?

Stephanie Kostro I think that’s part of it, Terry. We’re missing some of the folks who took that deferred resignation or the “fork in the road” option. Some of them did the voluntary early retirement programs. I would also say in many agencies, and I’ll use the phrase “OSDBU”, but I’ll actually speak out the acronym here, the Office of Small and Disadvantaged Business Utilization. Those were usually the offices that had the lead on publishing these websites, and those offices have sort of been dismantled in some agencies. They are certainly de-emphasized in a lot of the agencies. And so it might be … they’re missing the people, that is true, but it’s also they’re also missing the offices that have the lead on putting together these forecasts. And it really is a shame because, you know, the business community uses these forecasts in so many different ways. It helps them do, I mentioned the business planning, but helps them figure out who they want to partner with, who’s going to be their subcontractors or their suppliers, their vendors, etc. This is a real gap in understanding of what the federal marketplace can offer companies. And I do think it will have effects on whether commercial companies want to get involved in government work. They just don’t know what the opportunities are.

Terry Gerton I’m speaking with Stephanie Kostro, president of the Professional Services Council. Stephanie, one more question on this. I mean, GSA has gone through a lot of work to centralize procurement and forecasting. Would you expect that GSA will take this over perhaps and share their forecast?

Stephanie Kostro I love that you asked this question, Terry, because as I mentioned the last time we put out our forecast, it was in 2024 and we had actually at PSC highlighted GSA as a model for putting out these forecasts. We mentioned that GSA has something called their Acquisition Gateway, which sets a high bar for government business forecasting and it encourages the migration to the GSA tool for other departments. So Department of Labor, Department of Justice, they were using the GSA Acquisitions Gateway. So I think this is a fantastic opportunity to go back to that gateway and have GSA take the lead.

Terry Gerton Speaking of forecasts, PSC’s got a big session coming up starting on December 1st. Your vision federal market forecast. Tell us about that.

Stephanie Kostro I love that our entire segment here is devoted to forecasting, because the procurement dork in me is celebrating here. So PSC has this conference and it’s actually run by our foundation, which is our 501c3 nonprofit affiliate dedicated to education. And so it is a year-long process where we have so many teams come together. There are 21 different study teams, they focus on things like Health and Human Services, or Customs and Border Protection as part of the Homeland Security team. And this year of agency discussions, they speak to think tank folks, they speak procurement officials within the government, and it culminates in this conference and it’s happening in person on December 1st. It’s a virtual day for December 2nd and 3rd. It is where these 21 different study teams present their findings. So it’s not just tied to a web-based procurement forecast, but rather these discussions that they’re having with officials. We had over 400 volunteers as part of this process, and I’m just very excited. It is a great opportunity to really hear what’s going on in the procurement world, not just for opportunities, but what the dynamics look like, what impact inflation is having, etc. And to be honest, what impact these efficiency initiatives have had on the federal marketplace. So I highly recommend this conference. Again, it’s December 1st through the 3rd, and December 1 is the only in-person day here in Arlington.

Terry Gerton It sounds like in the absence of the agency forecast that we were talking about at the beginning of our conversation, this may be a great opportunity for contractors, those who are considering government work, to find out from inside sources what’s going on.

Stephanie Kostro It’s a perfect opportunity to get some business intelligence. It’s also a great networking opportunity because we do have government folks come to this conference as well to hear about what other agencies are doing. And so I highly commend it to folks who are listening, but I’m certainly going to be there and soaking up all of the knowledge that I can. I’m particularly looking forward to the Defense Services presentation in light of the Secretary of War Hegseth and his arsenal of freedom speech that he gave about transforming the processes for requirements and acquisition. I’m really looking forward to that. And I always look forward sort of to the top-line and the IT modernization teams as well. So if I were going to recommend three sessions, those are the top three. But they’re all very, very interesting and I’m looking forward to it.

Terry Gerton So how do people who want to attend find out about it and register?

Stephanie Kostro They can go to PSCouncil.org, and you can also search for Vision Federal Market Forecast and the sessions will pop up. There is a fee, obviously, for this, but it is open to the public. It is a widely attended gathering which allows government folks to attend. That is how they can connect with this conference.

The post Federal agency business forecasts have gone dark, and companies are struggling to plan without them first appeared on Federal News Network.

Interview transcript: 

Terry Gerton You, I’m sure, paid very close attention to Secretary Hegseth’s speech last Friday on the arsenals of democracy. What was your takeaway?

Stephanie Kostro Thanks so much for asking, Terry. And not only was I listening with bated breath, I was actually in the room. And for any Hamilton fans out there, it was the room where it happened. There were roughly 250 folks in an auditorium on Fort McNair when Secretary of War Hegseth rolled out his ideas for transforming acquisition. And there was a lot to be said, Terry, he spoke for well over an hour, nonstop, no questions, just kept going. I would say it’s fair to characterize the audience as a rapt. We were waiting for everything he had to say. There were three main topics he wanted to talk about. One was reforming or transforming the requirements process. The second was transforming the acquisition process. And the third was reforming foreign sales processes, and that’s including both foreign military sales and direct commercial sales. So all of that were key topics for everyone in that room.

Terry Gerton Well, let’s take those one by one and the requirements topic, of course, came up first. He talked about the end of the JCIDS and a realignment of the JROC. What did you take away?

Stephanie Kostro So the requirements process has long been an issue of great concern to industry, as well as from my time as a congressional committee staffer on House Armed Services Committee, talking about by the time you go through the several years to validate a requirement, it may actually be obsolete by the end time you roll out of that process. And so the idea of transforming the requirements process has been long anticipated. And I really appreciate what the secretary said regarding being flexible. Going for combining the requirements process with the acquisitions process so that it’s modular, that it does leverage available commercial technologies and products, that it really looks forward to getting a faster delivery times and getting weapons both developed and then deployed and in the hands of the warfighters who need them. So that was very much appreciated. No one, I think, will cry over the demise of JCIDS, but the question becomes, what rises to replace it. And, of course, the under secretary of war for acquisition and sustainment owes guidance on this issue to be released 45 days from the date of that directive, and then the military services have to come up with plans of action within 60 days. So the next two months are going to be very, very busy.

Terry Gerton All right. Part two was a reform of the acquisition process itself. The headline here is the elimination of PEOs and the replacement of them with program acquisition executives, right?

Stephanie Kostro PAEs, that is correct. So I think the other piece of this that goes hand in hand with requirements transformation is the reform and the transformation of the war fighting acquisition system, as they call it now, not the defense acquisition system. And it really focuses on the war-fighting piece of it. I think what I took away, and he said this a few times, Secretary Hegseth, and I’m going to quote him here, they want to increase acquisition risk in order to reduce operational risk. And for me that means putting flexibility in the hands of contracting officers and those in the programs to pursue modular, multi-source solutions throughout the development of a requirement, or rather the development, of a capability. And then actually to get it into the hands of the warfighter. They want to reward and incentivize speed and performance over bureaucratic processes. And that is music to a lot of industry’s ears.

Terry Gerton So a big part of that speed increases buying commercial first. Secretary Hegseth said they are willing to settle for 85% functionality and work toward 100%.

Stephanie Kostro So that was, I think, an interesting turn of phrase for him, mostly because he did say a few times to increase acquisition risk to reduce operational risk. And of course, you’re going to have to have a balance there of what is that 85% and what 15% are you going to be missing? And so I think as they move forward with embracing modularity, fostering competition and pursuing multi-source procurement, that you do want to move fast to contract. He also did mention not over-relying on the testing element. And so we’ve seen that in previous memos, particularly back in May, where Secretary Hegseth signed some memos about operational test and evaluation and streamlining that process in those offices. And so what I also found interesting is talking about putting contracting officers within the program offices too, so they can sit alongside the requirements developers and the folks who are responsible for fielding the capability, so they get a better sense of what the requirements are and how to incorporate those into contracts, leveraging commercial technologies as much as they are available.

Terry Gerton I’m speaking with Stephanie Kostro. She’s the president of the Professional Services Council. Stephanie, let’s touch on topic number three quickly, the foreign military sales reform.

Stephanie Kostro Part of this reform, or they keep saying transformation, not reformation, so I’ll key into that, transforming what military sales looks like. We’ve had lots of conversations, and I was at the Pentagon, in particularly the European office, talking with our allies and partners about how they could access U.S. solutions, and it always was a multi-year process to go from all of that pre-work where we talk about requirements to a letter of offer and acceptance at the end of it, and actually delivering the materials. It’s multi-year and it is so frustrating, particularly when companies want to compete with non-U.S. companies who don’t have the layers of bureaucracy. And so I look at the reorganization that the secretary laid out, that is to move the Defense Security Corporation Agency and the Defense Technology Security Administration, so I’ll say DSCA and DITSA, which is how we call them, over to the acquisition undersecretary. I think those are smart moves if in fact you want to speed up the fielding of compatible and interoperable equipment with our friends and allies. That said, I think it’s important to note that we need to incentivize folks in order to speed those situations up. And one thing that works really well, and it’s something that PSC has talked about in the past, is if you’re going to have an assistant secretary in a military service responsible for acquisition, and each of the military services has that individual, you need to put into their performance metrics foreign sales. They need to be measured on how well they are doing on that front as well. And that is something that I will be talking to the Pentagon folks and our CEO at PSC, Jim Carroll, will be taking to his Pentagon friends as well regarding how to actually incentivize this behavior.

Terry Gerton So this speech on Friday was the tip of the iceberg, much remains to follow in terms of detail, right? What will you be watching for there?

Stephanie Kostro I will be watching for the number of times and the depth of availability of Department of War individuals to speak with industry. This needs to be a collaboration. When you’re talking about speeding up requirements and speeding up contracting and speeding up foreign sales, you really need to talk to the industry that will be responsible for that. One thing that I did take away from the speech on Friday was an openness for profit. And I say that because a lot of times industry gets demonized for making a profit. But what happens is when you have profits, you can actually turn them back into the company and then make investments in future opportunities. And so if companies are allowed to make a profit, then they can have more money to invest in their companies and their technologies and actually move the ball forward faster. And so as we go through this, I will be looking at opportunities not only to comment formally through written comments, whether that’s through the Federal Register or the System of Acquisition Management, or SAM.gov, but also having round tables. We’ve offered to Department of War individuals, we at PSC are happy to schedule and facilitate a round table to have industry speak candidly with their government partners about how to make this happen faster, better and more efficiently.

Terry Gerton So you’d say that the speech was pretty well received by the folks in the room, then.

Stephanie Kostro I would say it was very well received as a rhetorical device. The proof is always in the pudding. The devil is always in the details. I think as we move forward, there will be more enthusiasm. Enthusiasm will grow, but it really depends on what those reports look like, that guidance from the undersecretary in 45 days, the military service plans of actions in 60 days, and how much input it reflects from industry. I think there is generally a recognition across the board, industry, executive branch and Congress, that something needs to change here. And in fact, a lot of what was in the speech reflected things that are under negotiation in the National Defense Authorization Act conference right now. And I think we are all rowing in the same direction. And I hope we stay doing that.

The post The Pentagon wants faster weapons and it’s giving industry just 60 days to help make it happen first appeared on Federal News Network.