Capitol US Government Image by MotionStudios from PixabayDeltek published the 15th edition of its annual Deltek Clarity Government Contracting Industry Study (registration required). The report is based on a survey of 649 government contractors based in the US. 63% of respondents were larger enterprises with revenues higher than 50 million. The report, like other Clarity reports is an impressive document, this one running to 75 pages.

The report offers optimism about the business environment for government contractors, with 54% reporting higher government revenue in 2023. With 62% expecting it to grow in 2024. However, the optimism is clearer in the large enterprise sector, with optimism less buoyant in smaller businesses. While only 4% of larger businesses saw revenue fall 10% in 2023, 10% of smaller businesses did. Despite that more than half of small businesses are confident about the year ahead, though the report did not divulge the actual percentages.

The report contains a mix of data points, data visualisation, comments, and analysis. Many supporting comments from industry leaders also add weight to the report.

What is in the report

The report is broken down into sections, which include:

  • Government Contractor Index: Down slightly from 2023 as a result of greater uncertainty
  • Market conditions: A look at 2023 and forecasts for 2024 around strategic approaches to business, AI technology adoption and challenges
  • Business Development: the challenges and opportunities facing business development teams
  • Project and Risk Management: How project delivery has changed and continued to change into 2024 and the challenges faced
  • Finance and Financial Compliance: A look at financial metrics and challenges of Government contractors, with margins falling slightly
  • Manufacturing: A look within the manufacturing sector at the challenges and perceived risks facing the sector
  • Contract Management and Procurement: How technology is helping to meet the evolving challenges
  • Human Capital Management: Highlights the ongoing challenge of talent retention and recruitment with a look at DEI
  • Information Technology and Security: A brief look at the priorities of technology change with cybersecurity top of mind, though AI is also important
Kevin Plexico, Senior Vice President of Information Solutions for Deltek (Image credit/LinkedIn/Kevin Plexico)
Kevin Plexico, Senior Vice President of Information Solutions for Deltek

Kevin Plexico, Senior Vice President of Information Solutions at Deltek, summarised the findings, noting, “This year, despite some challenges, we still found an optimistic outlook for increased government sales revenue and win rates in 2024. Government contractors are facing challenges when it comes to hiring skilled talent, increased competition for contract opportunities, as well as overall macroeconomic conditions. Most firms are looking to leverage emerging technology, like artificial intelligence, to achieve their business goals and adapt.

“We’re looking forward to seeing how increased adoption might lead to further growth and better business performance.”

Key and interesting  findings

Deltek shared five key findings from the report, but there are a wealth of others contained within it. The five key findings Deltek highlighted were:

  • There is optimism for the year ahead despite a falling index and some concerns from small businesses.
  • AI (34%), Cyber security (32%), data management/integration tools (32%) and business automation tools (26%) are the focus of technology investments. 45% are already using AI to help optimise internal operations, and 35% plan to do so.
  • Larger firms are looking to diversify into more areas, but the authors believe that smaller firms should be careful before doing so. 46% of firms are planning to diversify, though Deltek did not split this out by size of firm.
  • Small businesses face greater challenges in the year ahead, and growth will be hard, but for some, especially in manufacturing, automation might be the answer. Attracting talent is the top challenge (62%), with perhaps smaller companies finding it tougher to compete on salaries with larger ones.
  • As more firms diversify, there is increasing competitiveness. Firms are looking to focus efforts on better opportunity identification (81%), developing pricing-to-win strategies (77%), and exploring teaming opportunities (71%) to increase overall effectiveness.

Other findings in Deltek Clarity include:

  • While AI is receiving the greatest investment, cybersecurity remains the top concern for IT professionals. The top two strategies for addressing threats are to increase security monitoring (62%) and increase workforce security training (45%).
  • Implementing DEI programs is still challenging, and business leaders are placing less emphasis on them. Despite this, there have been positive changes.
  • The top two reasons for applicants turning down jobs were low compensation and work/life balance.
  • More Contracting firms may be looking to hiring graduates and train them. Jason Miller of Federal News Network/WTOP notes that he sees “a lot of vendors doing more with recruiting and trying to get college students interested in coming to work for them, which is a good thing.”

Enterprise Times: What does this mean

Another interesting report from Deltek that is well worth a read. The outlook for government contractors looks positive, though many challenges remain the same from previous years. There are a couple of points worth making. As baby boomers retire, the expectations of new workers are evolving. What might have been interesting is if Deltek had given a breakdown by generation to see if some of the answers varied significantly between different generations.

Despite the federal government’s interest in purchasing more services from smaller businesses, it seems that times are tough. As larger businesses diversify, competition may increase, putting even more pressure on smaller businesses.

The report does not examine in depth the impact of M&A activities in the GovCon sector. Although it is highlighted as a top challenge for digital transformation in 5% of businesses, little else is said in the report.

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