The Future of Federal Government Contracting: Key Insights from the 2023 Deltek Clarity Report
The 2023 Deltek Clarity Government Contracting Industry Study provides an in-depth look at the present state of the federal government contracting market, giving vital insights for federal contractors to consider as they navigate a constantly changing environment. The survey, which compiles responses from over 700 government contractors, provides a mixed but positive prognosis for the industry, with many main themes emerging that might have a big impact on how contractors approach their business strategies in the future years.
Despite persistent economic issues such as inflation, supply chain disruptions, and labor shortages, the government contracting business remains strong. A sizable proportion of contractors forecast positive revenue growth in 2022, with prospects of further improvement in 2023. This confidence is fueled in part by new financing sources, such as the Infrastructure and Investment Jobs Act, which has pumped significant funds into the public sector. However, increase is not consistent across all contractor sizes. Smaller businesses, in particular, are feeling the burden more strongly, with many failing to keep up with mounting costs and compliance requirements.
The Deltek Clarity study has a strong emphasis on internal process optimization. With external factors becoming more volatile and beyond their control, contractors are turning inward and focusing on improving their business processes across all functional areas. From company development to contract management, the drive to optimize operations is a common theme, with many organizations investing in technology to streamline workflows, better data management, and increase overall efficiency.
Labor market conditions continue to pose a significant problem for the industry, with many contractors having difficulty attracting and maintaining top talent. The report states that wage inflation and competition for skilled personnel are raising expenses, making it more difficult for contractors to give competitive bids while maintaining good profit margins. As a result, firms are not just rethinking their remuneration methods, but also emphasizing work-life balance, remote work possibilities, and inclusive workplace environments to attract and retain people.
Compliance is a major concern for government contractors, as evolving regulations and growing audit activities complicate contract management. The research highlights that contractors are experiencing growing compliance expenses, particularly in cybersecurity, supply chain management, and small business contracting rules. Despite these hurdles, contractors have high confidence in their capacity to interpret and comply with complicated contract requirements, thanks in part to investments in compliance-related technologies and training.
The Deltek Clarity report also provides insight into the strategic moves contractors are making in response to shifting market conditions. Many businesses are diversifying their revenue streams by shifting their focus from commercial to government business, entering new geographic markets, and extending their product and service offerings. This adaptability is critical as contractors strive to reduce risks and seize new possibilities in an uncertain economic environment.
The paper also emphasizes the importance of technology in fostering growth and competitiveness. Cybersecurity remains a primary focus, with many contractors increasing investments to prevent breaches and maintain compliance with federal rules. Beyond cybersecurity, businesses are rapidly implementing new technologies such as artificial intelligence (AI), machine learning, and cloud computing to improve company operations and decision-making. These investments are intended not only to meet compliance standards, but also to obtain a competitive advantage in the market.
The Deltek Clarity research emphasizes the need of strategic teaming and networking for small enterprises involved in government contracts. Smaller businesses sometimes struggle to compete with larger, better-resourced competitors, but by building strategic alliances and utilizing networks, they can get access to new opportunities and broaden their reach. The research also emphasizes the need of business development services in assisting small enterprises to negotiate the complexity of government procurement and increase their win rates.
In terms of financial performance, the survey finds that government contractors are largely enthusiastic about their prospects for 2023, despite persisting obstacles. Profit margins have been improving, particularly for larger organizations, and many contractors are reporting positive cash flow and revenue growth. However, the financial picture raises some concerns. Rising expenses, particularly for personnel and materials, are placing pressure on profit margins, and the increased frequency of audits is adding to contractors' administrative burden.
The Deltek Clarity report concludes with a clear message for federal government contractors: adaptation and resilience are critical for success in this changing environment. Contractors may position themselves for success despite future hurdles by focusing on internal process improvements, investing in technology, and being strategic about business expansion and relationships. Small businesses, in particular, will need to be able to effectively harness networks and resources in order to compete with larger corporations and gain a portion of the rising government contracting market.