Special Report | January 17, 2024
Record $765B in Federal Contracts Awarded in 2023
Federal government contract awards grew 9.5% to a record $765 billion in 2023 driven by strong growth in DoD procurement programs, construction, technology, and space spending
Key Takeaways
- The federal government awarded a record $765 billion in contracts in fiscal year 2023, a 9.5% increase over 2022
- The Department of Defense accounted for 61% of awards with growth driven by the war in Ukraine, increases in obligations for the F-35, and other large procurement programs
- Software and hardware technology contracts completed their 9th consecutive year of growth, reaching over $80 billion in 2023
- Construction awards rebounded strongly in 2023, though Federal totals have fallen short of the potential of the IIJA
- COVID-19 response awards declined 82%, with large drops in vaccine production and medical equipment and supplies
- Despite the strong increase in 2023, budget uncertainties may limit growth in 2024
Record $765 Billion in Federal Contracts Awarded in 2023
The U.S. Federal government awarded a record $765 billion in contract awards in fiscal year 2023, a 9.5% increase over 2022 and a record level. This is the second consecutive year of federal contract award growth following a brief contraction in 2021.
Federal Contract Awards by Year ($ Billions)
HigherGov Analysis
The largest drivers of growth were the exercise of options related to F-35 production, direct and indirect awards related to the supply of arms to support the war in Ukraine, a rebound in construction spending, and a continuation in the long-term growth of technology awards all offsetting a sharp decline in awards related to COVID-19 vaccine production and medical supplies.
Notable 2023 Trends
Department of Defense Awards Drove Majority of Growth
Total contract awards at the Department of Defense grew from $422 billion in 2022 to $470 billion in 2023, an increase of 11.5%. This was the largest percentage increase since 2018 and the largest dollar increase ever.
Department of Defense Contract Awards by Year ($ Billions)
HigherGov Analysis. Other includes agencies that do not report to the Navy, Army, or Air Force, including the Defense Logistics Agency, Defense Health Agency, and the Missile Defense Agency.
Navy
Contract awards at the Navy saw the largest increase in 2023, growing from $124.9 billion in 2022 to $154.0 billion in 2023. Growth came from aircraft manufacturing (+$13.4 billion), shipbuilding and repair (+$4.3 billion), engineering services (+$3.0 billion), and navigational equipment (+$1.4 billion).
More than half of the increase is attributable to the exercise of options related to contracts on the F-35 program with total prime awards on the program amounting to $36.5 billion in 2023 versus $20.8 billion the prior year, the vast majority of which came from the exercise of options under Lockheed Martin's lot 15-17 production contract. Other programs that saw major growth in obligations in 2023 included Columbia Class Submarine Design and the construction of Arleigh-Burke-class destroyers.
Army
Contract awards at the Army declined slightly year-over-year from $114.3 billion in 2022 to $114.2 billion in 2023. Most of this decline is attributable to a decrease in medical diagnostic and pharmaceutical awards (primarily COVID-related) from approximately $27 billion in 2022 to only $2 billion in 2023.
Offsetting this decline was increases across guided missile and space vehicle manufacturing (+$6.4 billion), aircraft manufacturing (+$4.6 billion), building construction (+$3.9 billion), and ammunition (+3.3 billion) awards. Many of the largest awards during the year included direct and indirect production of missiles, vehicles, and ammunition to support the war in Ukraine (see more below). Other major programs with award increases during the year included Black Hawk production, V-280 development, and PAC-3 Production.
Air Force
Contract awards at the Air Force increased from $80.2 billion in 2022 to $95.2 billion in 2023. Growth came primarily from aircraft manufacturing (+$5.4 billion), research and development (+$2.7 billion), and guided missile manufacturing (+$1.2 billion).
Major programs that saw growth in 2023 included F-15EX long-lead production items, C130J engineering and production, engineering and early production under Northrop Grumman's primary GBSD Development Contract, and research for the Next Gen OPIR Polar (NGP) missile defense contract.
War in Ukraine
While approximately $75.4 billion in bilateral aid has been provided by the United States to Ukraine in total, much of this spending was either (1) provided through grants, loans, or security assistance, (2) was provided directly by U.S. military personnel, or (3) was through the drawdown of military stocks, so only a portion of the total aid will directly benefit defense contractors.
We estimate that approximately $8 billion in contract awards in 2023 were directly attributable to supporting the war effort in Ukraine, including billion-dollar-plus acquisitions of Guided Multiple Rocket Launch Systems (GMLRS), Armored Multi-Purpose Vehicles (AMPVs), and M1128 Projectiles.
Analyzing the types of products and services most in demand in Ukraine and year-over-year changes, we estimate that the total benefit to defense contractors was approximately $18-22 billion in 2023 with Lockheed Martin, RTX, BAE Systems, General Dynamics, and their subcontractors being the greatest beneficiaries.
We anticipate that this annual benefit to contractors will likely persist in the near term regardless of the level of continued U.S. support as contractors work to overcome production bottlenecks to replenish the drawdown of U.S. stocks. This estimate does not include general increases in military spending in Europe and elsewhere that may support Foreign Military Sales (FMS).
First Expansion in Defense Supply Base in 20 Years
2023 was the first year since at least 2006 that the defense supply base, as measured by the number of companies performing on at least one prime defense contract, increased. While the growth was small - an increase from 37,057 to 37,092 contractors, it is a significant first step in arresting the decline the long-term decline in the number of defense contractors participating in the market.
Number of Contractors Receiving Department of Defense Awards by Year
HigherGov Analysis
Expanding the defense supply base is an increasing priority for the Department of Defense which has taken several steps to support smaller contractors, including reorganizing the government-funded APEX Accelerators designed to support small businesses. However, given the costs involved in implementing new cybersecurity requirements and other barriers to entry (see increasing use of contract vehicles below), maintaining and growing the defense base will remain a significant challenge, especially in years where total defense contract spending is not growing by more than 10%.
Civilian Agencies
Civilian agency contract awards increased from $277.5 billion in 2022 to $295.1 billion in 2023, an increase of 6.3%.
Civilian Agency Contract Awards by Year ($ Billions)
HigherGov Analysis.
Department of Veterans Affairs
Contract awards at the Department of Veterans Affairs totaled $60.8 billion in 2023 growing $4.8 billion versus the prior year.
As in recent years, the VA's adoption of Community Care Networks (CCNs) drove most of the contract growth at the VA in 2023. Total CCN awards reached $24 billion in 2023 versus virtually $0 in 2019, though that growth appears to be starting to level-off as the CCN contracts mature.
Department of Energy
Awards at the Department of Energy increased from $41.2 billion in 2022 to $44.4 billion in 2023.
Award growth was spread across the DoE with the NNSA Weapons Activities and the Office of Environmental Management seeing the largest growth, with contracts supporting nuclear development and nuclear site remediation contracts collectively seeing more than $1 billion in increases. Some of the projects seeing the largest increases in awards during 2023 included operations at the Lawrence Livermore National Laboratory, maintenance and operations at the Y-12/Pantex Plant, Savannah River Site remediation, and operation of the Los Alamos National Laboratory.
Health and Human Services
Spending at HHS declined from $33.6 billion in 2022 to $33.2 billion in 2023.
The decline was primarily related to a decrease in awards related to pharmaceutical spending and other COVID-19 awards. The decline in COVID-19 awards was partially offset by increased research spending, particularly $1.7 billion obligated in 2023 under an award to OTA consortium ATI to support the HHS Biomedical Advanced Research and Development Authority (BARDA).
Department of Homeland Security
Awards at the Department of Homeland Security reached $23.7 billion in 2023 up from $20.6 billion the prior year.
Awards increased across virtually all DHS spending categories with the largest increases in construction (+$1.5 billion) and logistics spending (+$400 million), primarily driven by border infrastructure and temporary housing construction for the Customs and Border Protection (for example), as well as increases in security guard and patrol services (+$400 million) and computer design and other related services (+$500 million).
Software and Hardware Technology Spending Continues Long-Term Growth
Among the most consistent increases in federal contract spending over the past 10 years has been spending on computer software and hardware. This trend continued in 2023 with total spending reaching $80 billion, up from $75 billion the prior year and more than twice the level of spending a decade ago.
Software and Hardware Contract Awards by Year ($ Billions)
HigherGov Analysis. Based on computer software and computer hardware-related NAICS codes.
While awards primarily focused on Artificial Intelligence remain a relatively small percentage of overall awards (approximately $1.7 billion in contracts were primarily for AI technology in 2023), there was a sharp increase in the number of federal solicitations mentioning artificial intelligence (or related terms), with 440 public solicitations released in 2023 mentioning AI versus 352 the prior year.
Construction Awards Complete Rebound Following Sharp Decline
Federal construction awards rebounded in 2023 reaching $54.3 billion versus $47.3 billion in 2022 and surpassing the previous peak awards of $48.0 billion in 2020. Virtually all of the increase was attributable to an increase in spending at the Army and Navy with civilian agency construction awards remaining close to flat year-over-year.
Some of the largest growth projects this year included the P-381 Multi-Mission Dry Dock at Portsmouth Naval Shipyard, USACE-led construction of a new Veterans Affairs Health Care Center in El Paso, Multi-Mission Surface Combatant (MMSC) Facility and Infrastructure in Saudi Arabia, and building construction at Fort Meade.
Construction Contract Awards by Year ($ Billions)
HigherGov Analysis. Based on construction-related NAICS codes.
Limited Benefit of Infrastructure Act to Federal Construction Contractors
While approximately $139 billion was outlaid via the Infrastructure and Investment and Jobs Act (IIJA) in 2023, the vast majority was distributed via grants to state and local agencies or public corporations rather than through direct federal awards with the benefits accruing to contractors focused on the state and local market.
Only approximately $32 billion of IIJA funds were awarded via federal contracts in 2023 and much of that money was directed toward non-traditional infrastructure including research and development projects and facility support services. In 2023, only approximately $4 billion of direct federal awards funded by the IIJA went to traditional infrastructure awards including engineering, highway and bridge construction, and construction support activities.
Space Awards Reach New Heights
Contract awards at NASA and the Space Force reached a record $29.9 billion in 2023 versus $26.7 billion the prior year. Growth at NASA was driven by ramping-up of awards supporting the Human Landing System (Integrated Lander) and Commercial Crew Transportation at SpaceX, and increased spending at the Jet Propulsion Laboratory for the Mars Sample Return (MSR) Program. SpaceX awards reached $1.6 billion at NASA in 2023 (out of $2.5 billion SpaceX awards government-wide), versus less than $500 million in 2020, as it has quickly become the second largest federal contractor at NASA behind only CalTech.
Growth in the Space Force was driven by an increase in spending across virtually all sub-agencies and across a number of programs. Notable increases in 2023 included increased spending at the National Security Technology Accelerator (NSTXL) as obligations increased under its Defense Space Prototyping contract and across several programs including Boeing's Evolved Strategic STRATCOM (ESS) Rapid Prototype and multiple contracts supporting Raytheon's Future Operationally Resilient Ground Evolution Mission Data Processing Application Framework (FORGE MDPAF) program.
NASA and Space Force Awards by Year ($ Billions)
HigherGov Analysis
COVID-Related Spending Faded Quickly in 2023
After bolstering contract spending in 2020 through 2022, COVID-related awards declined significantly in 2023. Contracts that specifically mentioned COVID response as the primary purpose declined from $33.7 billion in 2022 to $6.2 billion in 2023 after peaking in 2021 at $40.8 billion.
The largest portion of this decline is attributable to a decrease in COVID-19 vaccine and other pharmaceutical countermeasure awards with total federal contract spending on drugs and biologicals declining from $38.7 billion in 2022 to $17.5 billion in 2023, approaching pre-COVID levels of approximately $12-15 billion per year. Besides pharmaceuticals, government purchases of laboratory and medical equipment and supplies also saw steep declines in 2023, falling from $10.7 billion in 2022 to $6.2 billion in 2023
COVID-19 Response Direct Contract Awards by Year ($ Billions)
HigherGov Analysis. Only includes contracts specifically listing COVID-19 response as the primary purpose of the award.
Competition Levels Reached a Record High in 2023 (but remain low)
The average number of bidders per awarded contract was 3.40 in 2023, a meaningful increase from the recent low point of 2.86 in 2018 and the 15-year average of 3.0. While still a relatively low number, it is the highest ever reported using HigherGov's methodology.
Average Number of Solicitation Bid Responses by Year
HigherGov Analysis. Excludes outliers and contracts under $25,000 in value.
Reasons for the increase are difficult to tease out of the data, though we suspect that one of the key drivers may be the shift away from Lowest Price Technically Acceptable (LPTA) work source selection, which became more common following sequestration in 2012, towards Best Value source selection following new rules limiting LPTA at the DoD implemented in FY 2020 and civilian agencies implemented in FY 2021. LPTA contracts can squeeze margins and result in many contractors avoiding these solicitations.
Moreover, for price-driven contracts, the increasing volume of solicitations on government systems such as eBuy (for the MAS schedule), enable bidders to submit quotes more easily, encouraging participation by more bidders (even if the total number of bidders eligible for these systems is more restricted). We also suspect that the previously mentioned reinvigoration of the APEX Accelerators may be encouraging new entrants into the market and better empowering them to compete for contracts.
Rapid Expansion in Contracting Vehicle Use
Contract vehicles continued to grow in importance in 2023, extending a multi-year trend. Increasingly, access to Government Wide Acquisition Contracts (GWACs) has become a necessity to be competitive in the federal market. A record $38.2 billion of Prime contracts was awarded under the largest GWAC, the Multiple Award Schedule (MAS) in 2023 (including predecessor schedules). The next two largest vehicles, OASIS and SEWP V also saw record awards of $13.4 billion and $10.5 billion respectively. We expect recent proposed amendments to the MAS as well as the next iterations of SEWP and OASIS currently being recompeted will drive further volume increases.
Contract Awards Through a Vehicle ($ Billions) and as a % of Total Awards
HigherGov Analysis
The rapid growth in vehicle use has simplified purchasing for many federal agencies but has created an additional barrier to entry for contractors looking to enter the federal market. Many product and service categories at certain agencies are now almost exclusively acquired through GWACs or other vehicles with a limited awardees, and many small businesses do not have the resources to obtain access to these vehicles.
The Growth of "Subcontract Only" Vendors
HigherGov estimates there were approximately $102 billion in federal subcontracts awarded in 2023, roughly in line with the prior year's total of $104 billion (these numbers are in addition to the prime totals discussed previously).
The number of subcontract recipients also held steady at approximately 22,000. 2023 saw a continuation in the trend of "subcontract only" federal contractors - companies that only participate in the federal market as subcontractors to other government contractors rather than working directly with the federal government, with nearly 11,000 companies now falling into this category.
The expansion of this group has been driven by the desire of some contractors to avoid the challenges of government procurement processes as well as contract consolidation and the aforementioned use of contract vehicles that have made the receipt of direct awards with the federal government more challenging in certain markets.
Uncertain 2024 Award Outlook
Despite the strong 2023 for contractors, the outlook for 2024 is far more uncertain. 2024 awards benefited from increases not likely to be repeated every year, such as the exercise of options on the F-35 (the largest defense program ever) and a surge in supply of weapons to Ukraine. While we do not expect the 2024 election to have much direct impact on FY 2024, continued uncertainty regarding the FY 2024 budget may create downside for contractors, and the final details of the budget agreement recently reached by congressional leaders will greatly impact the areas most affected by the tighter federal budget. Regardless of the ultimate details, it is clear that contract awards will be under greater pressure in 2024 and 2025.
Author
Justin Siken
Founder of HigherGov
justin.siken@highergov.com
LinkedIn
Terminology and Data Notes
- Note that the term “awarded” as used in this report refers to dollars obligated during government fiscal year 2023 (ending September 30, 2023). Contracts may have started in prior years.
- Includes awards disclosed through January 9th, 2024. By law, all awards were to be disclosed before this date but agencies will sometimes amend prior data to correct inaccuracies.
- Prime contract awards total does not include classified contracts or contracts not otherwise disclosed by the Federal government.
Data Sources
HigherGov Analysis, Federal Procurement Data System, System for Award Management, Federal Subaward Reporting System