As the federal government’s fiscal year enters the final stretch, information technology vendors are finding the market conditions trying in several ways. Security clearance backlogs, tough competition for talent in the Washington, D.C., metropolitan area, and a budget squeeze caused by the ongoing conflicts in Iraq and Afghanistan have many companies on edge. On the procurement policy front, some industry groups take issue with the recommendations emanating from the government’s Acquisition Advisory Panel.

Another factor is the prospect of political change in the midterm congressional elections.

But industry executives say the short-term discomfort and uncertainty will yield to solid prospects in the long haul. Many believe tighter budgets will translate into an increasing tendency among agencies to outsource projects. Demographics also point to increased contracting opportunities because large numbers of government employees will likely retire in the next few years. In the meantime, contractors eye the market warily. Here’s what they are watching.

Human resources constraints
The ability to obtain security clearances remains a problem for IT services contractors, even though the Defense Security Service is back in action after a 60-day shutdown earlier this year. Executives said the backlog has eased but added that the clearance process continues to be slow.

“It takes quite a while to get clearances,” said Dennis Kelly, president of TechTeam Government Solutions. “And that just makes it harder for us to staff positions.”

Jim Sheaffer, president of Computer Sciences Corp.’s federal division, said contractors’ ability to quickly address government requirements is constrained when the clearance process lags. CSC has a sizable roster of cleared employees and subcontractor relationships to keep pace with the government’s demands, Sheaffer said.

Charlie Erdrich, vice president of business development at Avineon, said smaller companies have it harder than larger companies in the clearance department.

“You can’t have somebody sitting on the bench” waiting to be cleared, he said. “You need to find people who already have the clearances.”

Companies of various sizes face the same predicament. As a result, the Washington, D.C., labor market has become extremely competitive.