Microsoft Summit

Presentation by Stan Soloway President & CEO Professional Services Council February 8, 2008

The Market Today

No surprise: budget fatigue and instability = moderated and “staggered” growth

•FY08 is second consecutive year of “omnibus living”–Spending on services was down 12% during first half of FY07 (vice same period in FY06) –Preliminary data suggests it partially rebounded in Qs 3 & 4

•In FY08, funding determined at end of Q1–How will the market respond?

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New Definition of Market “Normalization”

•Growth from 9/11 through FY05 was 11% to 23%•Market returned to historic norm (7%) in FY06

–DoD growth = 8% vice 13% from 05-06–Civilian agency growth = 7% up from 2% 05-06

•Pending final data, FY07 market appears to have been flat•Must continue to differentiate between “market growth/potential” and budget growth

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Professional Services Continue to Drive Market

•Grew nearly 6% again in ’07•After rebounding in key agencies in ’06 (DHS, NASA, DoE) IT flat overall in ‘07•PAMS is nearly 25% of all services procured—up from 18%•PAMS growth evident in DoD (Army: 15%, Navy: 16%) as well as agencies with tough budget challenges (DoT, VA, et al)

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Professional Services Continue to Drive Market (continued)

Growth strong in other sub-categories: •Program/Project Management•Quality Control/Testing •Utilities/Housekeeping/Facilities (including civilian)•Education/Training•Tech Rep Services

Government workforce/skills gaps are being felt in increasingly diverse fields.

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2008 Promises More of the Same•Another “omnibus” year means continued constraints; possible program slippage•War costs will continue to divert DoD resources, defer capital and infrastructure investments•BRAC costs and timing in question•Civilian agencies continue to get the brunt – with little relief in sight.•Electoral politics will likely perpetuate funding impasse AND perpetuate focus on contractors

While the market continues to respond to agency needs, peripheral pressures will also continue--and likely grow.

The Market’s Multiple Pressures

Congress, media, public attitudes, agency leadership•Credibility of the procurement process and our industry is low (documented by PSC’s external survey research)•Pressure on industry also high: M&A, “people,” customer anxieties, uncertainties, transaction costs•Myths/perceptions becoming “realities”•National political mood exacerbates the problem

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Policy Pressures

•A Renewed Focus on Visibility•New Process Requirements•Workforce/Role of Contractors Issues Expand•New Pressures on Profits

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A Renewed Focus on Visibility

•Coburn/Obama “Transparency” legislation•Intensified OCI/PCI attention•Public disclosure of J&As, audits•Greatly increased reporting on role/# of contractors•NDAA

- 40 procurement provisions-new reporting/new visibility/regulations re: contractors

•Small Business legislationEverything will be in the public record and searchable!

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