Finance & Compliance Leaders Expect Revenue to Grow Even Though Clarity Government Contracting Results Show Problematic Profitability

Posted by Deltek on August 30, 2021

2021 Clarity Government Contracting Industry Study

Despite a year that was unprecedented due to the impacts of the global COVID-19 pandemic, the 12th Annual Deltek Clarity Government Contracting Industry Study shows optimism on the part of finance and financial compliance leaders. Nearly three quarters of respondents expect revenues to increase in 2021, however that growth won’t be without its challenges. Overall, government businesses saw a 10% decline in profitability, harkening back to levels not seen since sequestration in 2014. Increased federal spending softened the impact of the pandemic on the industry as a whole, but to keep their businesses moving in a positive direction, many finance and financial compliance leaders leaned into key fundamentals to pivot and adapt.

The multi-year nature of certain contracts preserved an ongoing revenue base for many contractors. In terms of new contracts, 31% of those surveyed saw delays due to the pandemic, with 45% reporting no change. The segment of the industry that was most impacted by delays was professional services, with healthcare and energy and power experiencing the least impact. Survey responses across eight business areas provide insights from this year’s Study, with additional commentary from Deltek experts weighing in on what certain outcomes may mean for next year.

Important Benchmarking Numbers

The 2021 Finance & Financial Compliance Trends in-depth webinar highlighted key metrics to keep in mind:

  • Average overall composite overhead rate – 39%. Medium-sized businesses reported a 10% increase year over year.
  • Average monthly invoice cycle – 10 days. This is an improvement over last year’s average of 14.5 days.
  • Average days sales outstanding – 42 days. A slight improvement compared to the previous year’s report of 45.1 days.

Finance leaders mostly struggled with coordinating with clients, adjusting processes to accommodate new clients, project or business demands, and managing a dispersed workforce in 2020. Many prioritized diversification into new customers (agencies) and new markets, in addition to a better qualification of the profitability potential for new business to address these challenges.

Compliance and Audits

Indirect rates and internal control systems are reported as the top two challenges affecting financial compliance teams the most, with a three way tie of labor and timekeeping, FAR clauses on contracts and subcontracts and unallowable costs rounding out the top five. To address these concerns, contractors are conducting more internal audits, reengineering business processes and hiring third parties to assist in compliance and audits. In regards to changes to indirect rate structures, 64% of contractors changed their general and administrative expenses structure, while others added fringe benefit and/or overhead pools for new categories of labor or lines of business.

More than half of surveyed contractors admitted to manually reviewing information to identify risk factors within their business, specifically financial transactions and project schedules. Forty-eight percent (48%) noted they use controls and alerts within their accounting system to identify potential risk.

Explore More Results

Even more results await! Download the in-depth 2021 Finance & Financial Compliance Trends webinar to hear additional takeaways from two Deltek partner experts about the current state of finance and financial compliance within the government contracting industry.

You can also download the full Deltek Clarity Government Contracting Industry Study at any time.