The Current State of State

The current Department of State is facing change at every turn, from personnel numbers, to budget restrictions and new organizational structure.  This article provides background, expected changes, potential impacts, and resulting opportunities for contracting at State. 

As stated in the Department of State – USAID Strategic Plan, 2014-2017, the Department of State's mission is to shape and sustain a peaceful, prosperous, just, and democratic world, and foster conditions for stability and progress for the benefit of the American people and people everywhere.  This mission is shared with the United States Agency for International Development (USAID), in a partnership for investing in shared security and prosperity that will prepare the U.S. for the challenges of the 21st century.  The leading policy areas and issues that the State Department addresses around the world for the benefit of the U.S. include:

Personnel

The U.S. maintains relations with about 180 foreign countries and with many international organizations, which adds up to about 285 U.S. Missions (embassies or consulates).  To support these posts in implementing State’s foreign affairs mission, the Department is organized domestically into 62 Bureaus and Offices.  The total number of Department employees is 74,720, and an excess of 10,000 contractors augment the staff.  Secretary of State Tillerson has maintained a hiring freeze, and there is no indication when this freeze will be lifted. In addition to a Department-wide freeze on hiring, the Administration has been slow to submit nominations to the Senate to fill senior management policy positions.  Of the 130 senior positions that are subject to Senate confirmation, 44 nominations have been submitted and 23 have been confirmed as of the beginning of the Senate’s August recess. 

The vacancies in many of State’s high level policy positions have significantly impacted policy and program decisions, which have been either delayed or postponed.  For example, the nomination for the Department’s top level, management and administrative position, The Under Secretary for Management, is pending in the Senate.  For the last six months, this vacancy has impacted major policy decisions, key personnel selections, and day-to day-operations in 16 State management and administrative Bureaus and Offices that support State’s foreign affairs mission. Once the Senate acts on this nomination, which is expected sometime this fall, the “dam may well burst”, and policy, program, and personnel decisions should start to flow.  Shortly thereafter, opportunities for new contracts should emerge, depending on the level of funding that Congress approves for FY 2018.  

Budget

The Fiscal Year 2017 State Operations budget is $16.1 B.  The President’s FY 2018 Budget Request for the Operations budget is $11.7 B, a proposed reduction of $4.4 B or 27%.  When the request was submitted to Congress in the spring of 2017, it was greeted with wide spread skepticism, and key members of both parties pronounced it unrealistic and dead on arrival.  In July, the House Appropriations Committee marked up the FY 2018 State, Foreign Operations and Related Programs Appropriations Bill; State Operations would receive a budget of $13.7 B, an increase of $2 B above the $11.7 B request, but still a reduction of $2.4 B 0r 15% below the FY 2017 level of $16.1 B.

There are some significant bright spots in the House Appropriations Committee’s proposed spending level for the Department.  First, the Committee included resources above the FY 2017 level for Information Technology, principally for the Capital Investment Fund.  In addition to a direct appropriation of over $15 M, an estimated $278,760,000 in expedited passport fees will be used to support the Department’s Information Technology modernization effort. Second, the Committee’s recommendation provides resources to improve financial management systems, e-mail and records management, and cyber-security.  Third, the Committee’s recommendation maintains the FY 2017 level for Embassy Security, Construction, and Maintenance and Worldwide Security Protection.  Each of these areas contains substantial contracting opportunities.  The principal areas that would be impacted by proposed reductions in the Committee’s recommendation include overseas operations of the Department’s regional bureaus, which support U.S embassies and consulates, and the operational programs and management offices of the 16 functional support bureaus of the Department.

The State, Foreign Operations and Related Programs FY 2018 Appropriations Bill still needs to be considered and approved by the full House of Representatives. The   current outlook is for inclusion of this bill in an omnibus bill with the eleven other FY 2018 Appropriations Bills that will also contain a Continuing Resolution running through December 2018.  The package will be on the House Floor in early September although this strategy could change with a decoupling of an FY 2018 Continuing Resolution.  As for the Senate, the outlook is for the Senate Appropriations Committee to consider a separate FY 2018 State, Foreign Operations and Related Programs Appropriations Bill the first week in September.  The Senate Committee is expected to follow the House and make less of a reduction from the FY 2018 level than the President has proposed. 

In any event, one thing is clear.  The FY 2018 budget for the State Department will not be made final by October 1, 2017, the start of the new fiscal year.  A Continuing Resolution at FY 2017 levels will be necessary at least for the first quarter of FY 2018 for all Federal Departments.  This means that the current funding level for the State Department will continue for at least the next few months and if the current Department freeze on new contracts is lifted, a number of opportunities should emerge. 

Reorganization

Upon taking office in January, Secretary Tillerson announced that he was undertaking a major reorganization of the State Department, which he characterized as a redesign to modernize and make the Department more efficient for the 21st century.  The Secretary has hired two outside consulting firms (Deloitte and Insigniam) to help conduct the reorganization. Five steering committees covering different areas and subjects, one of which is a detailed review of the Department’s Information Technology operations, were formed to consider the survey responses from employees and help plan the reorganization. 

The steering committees, comprised of Department employees and consultants, will consider consolidations of Bureaus and Offices, elimination of functions thought to be redundant or obsolete, possible transfers of functions to other Departments and agencies and a staff reduction targeted at 2,300.  One Bureau reportedly being considered for transfer is Population, Migration and Refugees to the Department of Homeland Security (DHS).  Another is the Bureau of Consular Affairs, at least the Office of Visa Services, which would be moved to DHS. When considered together, these organizations have significant numbers of contractors that would be lost to State but would re-emerge in DHS.  There could be other State Department organizations proposed for transfer to other Departments when the proposed recommendations, scheduled to be submitted to The Office of Management and Budget on September 15, are made public. 

Contracting

The State Department makes extensive use of contracts in support of its foreign affairs mission.  These include personnel support, equipment, services, maintenance, construction and other categories.  State uses Government-wide vehicles in letting contracts domestically, including GSA Schedules, CIO SP-3 and FEDBID.  It also uses reverse auction procedures for many procurements for equipment and devices.  In addition to domestic contracts, a significant number of the 285 U.S. Missions let contracts.  For businesses that have the capability to provide services abroad, procurements that U.S. Missions conduct directly offer substantial opportunities.

The Department’s freeze on filling FTE vacancies, summarized above, also applies to new contracts.  However, re-competes and new task orders on current contracts are permitted.  As with the freeze on new hires, there is no indication when the freeze on new contracts will be lifted. 

In administering solicitations for re-competes and new tasks orders, the State Department continues to place increasing emphasis in creating opportunities for small business, and particularly the various small business reservation categories.  While the Department has regularly met its goals for most of the categories, it often has fallen short on its Hub Zone contracting goal and a few times on its goal for Service Disabled Veteran Owned Small Business firms.  Thus, there has been a noticeable increase in opportunities for these categories, but at the same time an overall increase in the number of small business opportunities in general.  The Department’s contracting office has created these opportunities to a certain extent by converting full and open contracts that are appropriate to small business set- asides.  Therefore incumbents on full and open contracts that the Department has converted are obliged to seek teaming arrangements with appropriate small businesses.

Conclusion

The current outlook within the Department of State is one of uncertainty in practically every area – personnel, budget, contracting, and organization.  While the uncertainly has not had a major impact yet on State, it has slowed down operations, affected morale and caused an increasing number of employees to leave.  If the uncertainty continues well into 2018, that could result in a major impact internally and in the provision of services upon which the Department’s constituents depend. 

It is important to keep in mind that this period of uncertainty is not final and that there is cause for optimism. First, re-competes of current contracts are now occurring, and they cover a broad range of subjects.  These include: Information Technology; construction; buildings systems and maintenance; janitorial services; language training; health insurance; architecture and engineering; renovation and refurbishing; security; logistics; consulting; transportation and travel; and many more, too numerous to list.  Although many re-competes are reserved for small business, large firms can also take advantage of these opportunities through imaginative and creative teaming with small firms. In addition, many contracting re-competes occur in the 280 U.S. embassies and consulates, or have an international component that requires the contractor to operate overseas.  These re-competes present significant opportunities for contractors with the capability to operate abroad or those able to team with other firms that have such a capability.  Second, the freeze on new contracts will not last forever.  Large and small State Department contracts that supply critical equipment and services have expiration dates, and replacements will have to be put in place.  Firms interested in contracting with the State Department should monitor the various contracting notification vehicles, meet with State program and contracting officials, consider hiring consultants, attend State Department Industry Days and contracting outreach events and use other means to keep abreast of opportunities of interest.  Third, any proposed reorganization, which Secretary Tillerson has indicated may take up to a year to implement, will have to be approved by Congress.  Therefore, the current organization may be in place for some time.  In addition, to the extent that the proposed personnel reduction is implemented, it may produce some new contracting opportunities for firms that provide operations support services.