9th Annual Clarity GovCon Industry Study Top-line Results and Benchmarks

Posted by Marc Holliday on July 27, 2018

Cautious optimism gave way to full-blown optimism as respondents rounded up their 2017 business experience for the 9th Annual Deltek GovCon Industry Study. More than 600 survey respondents answered a series of benchmarking questions to provide a comprehensive overview of the federal government contracting environment. A comparison of their reported business experiences and hundreds of hours of research by Deltek’s expert analysts revealed a variety of reasons for the good vibes. After years of decline, signs are pointing toward federal contracting indeed being in a phase of recovery.

  • Fiscal year 2018 appropriations levels, across the board in terms of agencies, are seeing the largest increase in a decade.
  • Defense recovery, which started in 2016, continues to trend upward.
  • Small and medium business contracting* has never been stronger – growth rates have more than doubled for many, and historic Clarity Study data shows a five year high overall.
  • Profit rates have edged up to pre-sequestration levels.

Everyone from finance, compliance and human resources leaders, to business development, project management and IT decision makers weighed in on exactly how the sentiments and spending are affecting their business corners. During Deltek’s recent webinar 9th Annual Clarity GovCon Industry Study, I reviewed these results, and provided executive-level context for short- and long-term business strategy considerations. Read on for some key takeaways from the survey data discussion.

 

9th Annual Clarity GovCon Industry Study


Executive Level Overview of Top Trends and Benchmarks


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Business Development

For those out to secure more government business, their top two challenges from 2017 into 2018 include:

  • Limited development resources
  • Successfully navigating indefinite delivery, indefinite quantity (IDIQ) contracting environments.

To overcome these and other issues, business development leaders researched expanding into other government agencies beyond their current customer space, rather than looking for additional opportunities in the commercial sector. Because of the leanness of the past few years, exploring opportunities with agencies outside of a firm’s “comfort zone” proved a gamble, with commercial being more of a sure bet. But, after addressing business development process concerns and honing approaches to identify best-fit opportunities, many leaders feel less anxiety moving into different government spaces. Retraining focus to more clearly understand opportunity requirements earlier in the proposal-building process has aided in calming a few nerves as well.

Project and Risk Management

Inexperienced project managers, poorly defined scope and accurate project timeline forecasting are the top three hurdles identified by leaders overseeing project and risk management within government contracting firms.

Though an emphasis on training dollars dropped down the priority list for many leaders, the development of internal project manager best practices to counter a lack of experience and historical context for younger workers (who are replacing retiring Baby Boomers) has not. In fact, it tops the list of next-steps, alongside leveraging business intelligence to better track formal key performance indicators (KPIs) and more accurately define scope, timetables and commitments.

Finance

Despite the major challenges of growing the topline organically while protecting the bottom line, increasing profitability, and reducing costs reported by contracting financial leaders, many are investing in growth more so than in years past. In part, this retrained focus is a result of the revised roles of CFOs and other top finance officers. Many finance leaders are weighing in on project management practices and providing final sign off on pursuing new government opportunities. Why? Because opportunities are being more thoroughly vetted and qualified in terms of profitability, which has also resulted in contracting diversification – pursuing new customers in different government agencies.

Cost cutting also is more strategic, with general and administrative (G&A), fringe and overhead rates proving most effective in reducing invoice cycles and days sales outstanding (DSO) within contracting firms.

Finance Compliance

Overall, reported instances of audits were flat compared to the Clarity 2017 report, with 83% of respondents confirming their review experiences. A majority of small and medium-sized businesses surveyed indicated a consistent amount of government oversight, based on previous years. Larger businesses reported the most increase, but compared to 2016, a sharp oversight decline is glaringly apparent – from 29% to 10%.

For the sixth year in a row, indirect rates are the number one audit challenge, immediately followed by internal control systems and labor and timekeeping. Also, for the first time in a number of years, unallowable costs dropped off the list of top financial compliance challenges, the assumption being that contracting firms have a better handle on definitions and management. Conducting internal audits and reengineering business processes have also proven successful tactics in addressing compliance needs, as has larger investments in hiring more experienced, better qualified talent.

Human Capital Management

Speaking of talent, the war for best-fit candidates is very real and it’s being fought on two fronts simultaneously – fending off other government contractors and the commercial realm. In the last 50 years, the unemployment rate has only been as low as current reports (June 2018) two previous times, making the labor market tight for employers hoping to attract better qualified talent. With the market being more on the side of the employee, employers are having to get creative with competitive compensation and benefits offers.

Many human resource (HR) departments are hanging a new shingle – actively investing in rebranding what it means to work for their firms. More so than in years past, younger generations of candidates are doing their research on businesses. They are especially seeking out current employees they are connected with to inform their decision on whether they even want to apply for a position. In response, contractors are increasing incentives and making their referral programs more lucrative.

With hiring specifically, firms are investing more in recruiters, sourced both internally and externally. They are also working to improve passive recruitment techniques – HR personnel using their own personal and professional networks to identify candidates who are not actively looking for a new job, but are qualified for open positions.

Human Resource Management

Retaining top talent by investing in strategy, implementing effective performance management and strategic workforce capacity and planning are all weighing heavy on the minds of human resource managers. Coupled with succession and career development being of high importance to younger workforces, many HR leaders are bolstering reward and recognition programs, crafting more formal career development plans and adopting mentorship programs to better engage current and future employees. They are also working to create human capital management (HCM) metrics to help managers become more strategic advisers.

Information Technology

Information Technology (IT) leaders are struggling with the same challenges identified in previous Clarity surveys: IT and data security, finding top talent, and satisfying government system security and regulatory requirements. With budget pressures decreasing for many, leaders are looking to hire more IT staff than in previous years, and are creating new security policies and procedures while also reengineering current business processes to satisfy new government regulation, like NIST 800-171.

Learn More

To hear even more results from webinar overview of the 9th Annual Clarity GovCon Industry Study – like the resources and systems government contractors of all sizes are using to manage contract information, the ratio of ground versus cloud solutions firms are using, and the top technology trends pulling focus – watch the on demand anytime.

For complete results from the Deltek Clarity GovCon Industry Study, download the full report.

*Classifications based on revenue levels.