Deltek's 2025 GovCon Clarity Study: How Government Contractors Are Maintaining Growth During Transition

Deltek's Clarity Government Contracting Industry Study, the widely respected source for industry benchmarks, is out now. This annual comprehensive report explores departmental challenges, identifies key issues and examines industry sectors to provide benchmarks and trends relevant to all companies involved in selling to the government.

In its 16th year, Deltek Clarity continues to offer detailed insights for government contracting professionals navigating an increasingly complex landscape. With a new administration taking office in January, contractors face an environment of change and unpredictability that demands increased agility and strategic planning.

The Government Contractor Confidence Index (GCCI) Drops

According to the composite Government Contractor Confidence Index (GCCI), sentiment has declined to its lowest level in six years. The GCCI, which measures overall confidence that government contractors can grow their public sector sales over the next 12 months on a scale of zero to 200, calculates to 138.0 this year. This represents a ~3.5% (4.8 points) decline from last year's level of 142.8.

While the index now sits 1% below its 10-year average after six consecutive above-average years, it remains only slightly under its long-term average. This indicates that although respondents are aware of potential government spending cuts with the new administration, many seem to adopt a "wait and see" approach. The decrease is primarily driven by a combination of more cautious vendor growth forecasts and tempered government spending expectations.

With economic and political transitions underway, government contractors need to position themselves strategically for future success. Here are four key findings to help navigate the changing landscape:

1. New Administration Impacting Strategies

As government contractors think about strategies to address challenges in 2025, uncertainty around the impact of the new administration and likely increased scrutiny on contract performance means contractors need to be more agile than ever. 39% of contractors expected revenue restriction due to the new administration’s policies. Companies are reassessing their approaches to compliance, reporting and relationship management as policy priorities shift under the new leadership.

Respondents are particularly focused on understanding how the administration's emphasis on budget constraints might affect contract awards and performance expectations. Many are looking at what they can control internally to minimize impacts.

2. Strong Performance in 2024

Government contractors experienced strong performance in 2024. Although some metrics fell short of the all-time highs seen in 2022, the outlook remains positive for 2025. With 54% of respondents reporting higher government revenue in 2024 and 59% expecting continued growth in 2025, many contractors maintain an optimistic view, although it’s yet to be seen how that view could shift throughout the year due to administration policies.

Even as companies prepare for potential challenges ahead, the industry has shown the ability to adapt to shifting priorities and capitalize on emerging opportunities in the past. Organizations that have diversified their contract portfolios may be better positioned to weather potential shifts in spending priorities.

3. Improving Efficiency to Combat Inflation

Inflation continues to impact government contractors, with labor and the rising costs of goods remaining the top concerns. Companies report that improving internal efficiencies is their primary strategy to overcome these barriers.

Process optimization, technology investments and strategic resource allocation are becoming increasingly important as contractors look to maintain competitive pricing while preserving profit margins. Many respondents indicate they're reviewing their entire operational workflow to identify opportunities for streamlining and automation to offset inflationary pressures.

4. AI Adoption Accelerates

This year, more respondents report actively using AI, potentially driven by labor and cost pressures, as well as the evolving policy landscape. AI is increasingly being leveraged to augment operations, automate workflows and enhance process optimization efforts within the government contracting sector.

AI and machine learning remain the top technology priorities for digital strategy investments – 41% of respondents considered AI and machine learning to be one of their top three technology investment priorities. Contractors are implementing these technologies for various applications, from proposal development to performance analytics, seeking to improve productivity while maintaining compliance with increasingly complex regulatory requirements.

Despite the uncertainties accompanying administrative transitions and ongoing economic challenges, the government contracting industry demonstrated robust performance in 2024 and maintains cautious optimism for continued growth throughout 2025. Success will depend on contractors' ability to navigate change, implement efficiency measures and strategically adopt emerging technologies.