Radiant Federal & SLED Business Development Results from the 10th Clarity GovCon Industry Study

Posted by Kevin Plexico on July 23, 2019

10th Clarity GovCon Industry Study Business Development

By Kevin Plexico, Senior Vice President, Information Solutions, Deltek

Is the future for federal and state, local and education (SLED) government contractors so bright that they need to wear shades?

Early in 2019, Deltek conducted the 10th Annual Clarity Government Contracting Industry Study. If your company does business with government at any level, this summary of business development trends in the federal and SLED markets will tell you if you need to procure your own pair of shades.


10th Annual Deltek Clarity Government Contracting Industry Federal Business Development Trends

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Political Environment: Federal Budget Outlook and Impacts

At the outset of 2018, federal budget challenges led to a two-year bipartisan agreement, quickly followed by 2018 appropriations. For contract spending, 2018 was a record year, at $557 billon. To put it in context, as a result of 2010’s Budget Control Act (BCA), the civilian side ended up with a sequester and BCA caps that decreased spending. Since hitting bottom in 2013, the civilian market has steadily recovered, with moderate annual increases; in 2018, it increased two percent.

Comparatively, the defense market has been a roller coaster. A continued decline resulted from the BCA caps on defense spending and decreases in Overseas Contingency Operations (OCO) financing for the war in Iraq and Afghanistan. Since hitting bottom in 2015, defense spending has marched upward; in 2018, it increased 11.6%.

Small and medium business (SMB) contracting had a strong 2018, with all categories of agencies improving. The government exceeded its goal of 23% SMBs.

Historically, the Appropriations Committee subcommittees worked on bills and bubbled them up to Congress. One or two bills were voted in, and the rest appeared in an omnibus bill. For 2019 appropriations, the committee atypically bundled several appropriations from the start. Many were complete by the beginning of the year, including Defense. Others got tied up in immigration political issues. Some agencies received no appropriations during the record-long shutdown.

The shutdown’s impact on federal contracting is estimated at nine billion dollars, but that’s expected to be made up by year’s end. The bottom line for agencies doing business with the federal government: minimal and temporary impact.

As always, the fourth quarter will be a big one. Make sure to watch the on demand webinar Deltek’s recent spending spree analysis, it's brimming with more details and forecasts on what to expect. For now, I’d say 2019 will be another year of growth, since most appropriations were up two or three percent and Defense saw a pretty strong increase.

Industry Consolidation

The mergers and acquisitions (M&A) scene was extremely active in 2018, with elevated levels of consolidation in the defense contracting industry. The General Services Administration’s (GSA) Category Management Initiative to consolidate contracts and drive agencies to use indefinite delivery, indefinite quantity-based (IDIQ) best-in-class contracts also resulted in consolidation.

The number of prime contractors is down 26% since 2009. Even though spending is increasing, we’re seeing fewer prime contract opportunities. That particularly impacts SMBs.

The 2020 Vision

The 2018 Bipartisan Budget Act raised discretionary caps for 2018 and 2019, but the Trump administration doesn’t support new caps for 2020 and 2021. But, if history repeats itself, the administration will request significant budget decreases for civilian agencies to fund defense increases. Typically, Congress adds money to Defense agencies and ignores requested civilian spending cuts.

For 2020, the Trump administration is requesting $650 billion for Defense and OCO. The House Budget Committee came out with $630 billion, slightly below the request but above 2019. The administration’s request included a gimmick to avoid the BCA cap, in that the $165 billion for OCO doesn’t count toward the cap. The administration’s request for Defense and non-Defense held to the cap, but almost doubled the request for OCO to cover expenditures beyond the cap. Congress was not receptive, so it’s something to watch.

Since the bipartisan agreement ends after 2019, sequester is possible in 2020. Even with all of that, 2020’s funding level is not much in doubt.

Federal Business Development Survey Results

A word about demographics: Complete data is available in the full report, but we had more than 750 respondents from government contractors across the country.

Bullish Outlook

To mark the survey’s tenth anniversary and the acquisition of Onvia, we unveiled a new metric, the Government Contractor Confidence Index (GCCI). The GCCI measures public sector sales over the previous year, the confidence of companies to grow those sales over the next year, and respondents’ overall impression of the spending environment. With measurements from 0 to 200, 0 signifies extremely low confidence, 100 is neutral, and 200 signifies extremely high confidence. We calculated 139.6, indicating robust confidence in the federal and SLED markets.

Increased Competition

Because of the healthy market, respondents saw increased competition as their top challenge, up 15% from 2017.

Of the 93% of respondents that do business with the federal government, 57% don’t do SLED business. Many of them want to do business with SLED agencies, especially the top cities and states. To enter this market, companies should build a reputation for delivering on time and on budget for smaller SLED entities and learn about SLED culture and personas.

Business Development Investments = Better Win Rates

Another top challenge is limited business development resources. The vast majority of firms of all sizes expect to maintain or increase investments in business development staff and resources, such as GovWin IQ, with large companies (more than $99 million revenue) having slightly more aggressive goals than small and medium businesses.

For smaller businesses (less than $20 million revenue), one way around investing in full-time employees is to use account management and planning technology to supplement staff, identify opportunities, pursue and manage contracts and increase win rate. Some contractors are also venturing outside of their client base to other agencies.

A better understanding of opportunities and requirements earlier in the process is the top initiative to address business development challenges. Unlike the commercial side, government contractors can’t discuss requirements with potential clients—one reason pre-bid market intelligence is a major challenge. Technology is unlikely to solve this issue, and governments are also trying to address it.

Sourcing and Selecting Partners

The top criteria for teaming partners have been the same for several years:

  • Capabilities of the potential partner
  • Past performance/experience
  • Customer relationships.

Medium-sized companies ($20-100 million) see themselves as more effective in sourcing and teaming with partners than other groups. Smaller companies are particularly challenged because they lack past performance, have no established reputation, and/or have difficulty getting the attention of larger companies. Best practices include communicating with vendors on conference exhibit floors. They can also become a sub on a large contract that they can’t pursue on their own. At the state level, a good number of them are getting better about vendor performance rating.

Win Rates

The composite win rate is unchanged from last year. Interestingly, larger businesses are experiencing larger growth, possibly because win rate includes re-competes, which typically have a higher win rate, and larger businesses have more of them, and because down-market competition is fiercer than in higher echelons.

Businesses with higher win rates tend to perform better on several key performance indicators (KPIs), such as more business development for full-time employees, more projects on or under budget, and higher utilization rates and staff retention.

For 45% of companies, government sales are higher than a year ago, 41% are the same, and 14% have declined. In the next year, a majority of respondents expect government sales to be higher or stay the same. Small companies expect the most significant growth. Time to put on those shades and get to work.

GovWin IQ

The new GovWin IQ release delivers visibility into Other Transaction Authority (OTA), where certain agencies can award contracts without competition in certain areas. Over the last four years, we’ve seen a 570% uptick in OTA use, particularly at Defense. It’s still a small percentage of the total, but OTA can result in high dollar value agreements that create dependency on a single vendor. Companies with access to GovWin IQ’s federal contract database and federal spending analytics can identify future buyers and partners in this high-profile area.

GovWin IQ Customers Exceed Their Goals

According to customer feedback, GovWin IQ users save 80+ hours each year. Median annual growth in federal prime contracting is 99.8%, seven out of 10 rate their partnerships as highly effective, and their proposal win rate is 15% higher than non-users.


10th Annual Deltek Clarity Government Contracting Industry SLED Business Development Trends

On Demand Webinar

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State, Local and Education (SLED) Business Development Survey Results

This is the first year that SLED was included in the survey and report. Its inclusion speaks to the prominence of the SLED business practice and the market’s importance. Agencies and vendors do similar amounts of business through four major channels: bids and requests for proposals (RFPS), cooperative purchasing, statewide contracts, and informal purchasing or sole source.

Overall Market Health

The SLED market is healthy and stable, as you would expect from a market with tens of thousands of purchasing entities. In our search for macro trends, we’re researching how bid activity tracks against revenue. We saw an increase in 2017 bid activity, followed by a decline. The increase is very likely due to changes in incumbents that clarified the agenda for the party in the driver’s seat. We also saw a revenue surge following 2017’s high bid activity.

Hot Spots: Growth Opportunities

With the Onvia acquisition and its smart tag classification taxonomy integrated into GovWin IQ, clients have granular visibility into SLED procurement to help them pivot to growing segments. With the vast SLED market, there’s a buyer for every contractor. Deltek’s annual Top 10 Hot Spots report is available for free download, but this year’s hot spot #1 (up 51%) is promoting government, particularly helping municipalities compete for talent and attract businesses. Hot spot #2 (up 41%) is cybersecurity, and #3 (up 28%) is upgrading transit systems nationwide.

We also classify smart tags in 12 industry sectors. Top growth sectors for 2018-2020 are environmental services, education and health care. The full report devotes a few pages to each sector.

More Efficient Procurement on the Horizon

The National Institute of Government Purchasing (NIGP) and state purchasing officers have been combating procurement constraints for 10 years by shifting to e-procurement systems. At first, they chiefly sent RFP notifications, but now more sophisticated tools handle e-sourcing, notification and contract spending analysis. We’ve also seen more procurement offices use a P-Card. If governments can avoid the bid process, they will. We’ve also seen an increase in requests for information to do pre-bid research and planning, test the market and get feedback from vendors before issuing an RFP.

Since SLED entities do business in varying ways, Deltek has how-to-do-business guides available for free download for 25-30 states and other SLED entities.

An Alternative Channel: Cooperative Purchasing

Governments are streamlining procurement with cooperative organizations that pre-qualify or aggregate vendors into a catalog. Agencies, which purchase from the catalog without competitive bids, are enthusiastic, and 70% of vendors say this channel will be important to future business development. More research will be released at the NIGP conference in July.

For more stats and insights to help you grow your business, watch the dedicated federal and SLED on-demand webinars. And, don’t forget to procure those shades.

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