Three Challenges To GovCon Firm Growth

Posted by Deltek B2g on February 4, 2015

Deltek Forecasts Army IT Spending Will Fall Through 2021

This week’s list: Three Challenges To GovCon Firm Growth. Check back next week for more from #GovList!

Government contracting is slowly emerging from several years of declining spending. Deltek’s annual Clarity survey, now in progress for 2015, checks the pulse of that recovery, providing key industry insights from senior executives at more than 400 government contracting firms.

Although Clarity 2014 identified organic top line growth as a focus into 2015, it also flagged challenges that may continue to temper industry growth this year. The top 3 challenges identified are:

1. Increased Cost of Compliance: Clarity 2014 revealed that industry growth has been coupled with significantly greater federal scrutiny of large firms and deeper examination of firms of all sizes. In particular, 50% of firms in the $100M -$1B+ revenue range saw a significant increase in oversight. The study say a 13% increase year over year in the firms that had been through an audit in the last 24 months (88% of respondents). Nearly 75% of Clarity respondents identified Increased Cost Submission as the most costly type of audit with which to comply. This pressure is unlikely to let up any time soon, as the federal government continues to seek cost savings in 2015.

2. Attracting and Retaining Talent: During the lean years of sequestration and the draw down in the war effort, government contractors ran lean as overhead, G&A, and fringe rates all reduce significantly over the past 4 years. the industry average for composite fringe rates fell from low 30’s in 2009 to 22.8% in 2014. These reductions came largely from cutting staff and employee benefits programs and as a result, firms have a diminished ability to attract and retain employees, resulting in a looming human resources crisis. In 2014, Clarity respondents identified three top challenges for talent acquisition: the availability of good candidates in the market place, matching qualified candidates to open positions and the ability to offer competitive compensation to candidates. Respondents indicated that matching candidates to an open position consumes more time and expense than any other talent management business process. The industry must invest in current and new employees in 2015 or ultimately risk diminishing quality and innovation.

3. Risk Management: When firms fail to consider risk sufficiently, they find themselves in choppy waters, burning resources to keep projects afloat. A sweeping majority of firms of firms reported that risk/opportunity initiatives were triggered by forcing functions rather than a preemptive strategic decision, while 28% admitted to not managing a risk register or risk-adjusting their project plansBusinesses must embrace solid risk-management strategies to prepare for unexpected events.

When the market began to decline contractors turned from accelerated growth to showing a profit by tightening costs. Now the federal contracting market is cautiously optimistic as we see the first increases in federal spending in years but contractors will have to carefully manage through the legacy left behind. Contractors that re-invest wisely into their people, processes, and tools stand the most to gain as market begins to climb out of reduced spending.

by Warren Linscott, VP of GovCon Product Strategy & Management Deltek