Deltek Clarity Report - 2020

Government
Contracting
Industry Study
11th Annual Comprehensive Report
Discover the latest trends and
industry conditions that are
transforming the government
contracting market
Table of Contents
01 Introduction 43 Section Four: Human Capital Management
03 About This Study 52 Section Five: Contract Management and
Procurement
05 Executive Summary
59 Section Six: Information Technology (IT)
08 Section One: Business Development
68 Section Seven: Manufacturing
18 Section Two: Finance and Financial
Compliance 75 Statistics at a Glance
35 Section Three: Project and Risk Management
Introduction
The 10th annual Deltek Clarity Government Contracting Industry Study demonstrated
that widespread optimism in 2018 was largely expected to continue. Organizations
expected continued growth and revenue increases. Those expectations were affirmed
by strong annual financial performance figures for 2019.
In 2019, both small and large businesses experienced companies are focused on managing growth, protecting
healthy profit margin growth, with small companies margins and preserving cash flow as they enter a
improving 27% and large companies increasing temporary phase of potentially flat or declining revenue.
57%, compared to 2018. The median profit margin
was 8% for the second year in a row despite a
significant increase in unallowable costs. The results of the 11th Annual
Since the completion of this year’s Survey on March Study remain positive, with high
2, 2020, however, a unique and unprecedented event expectations of continued growth
occurred – a global pandemic took hold and it is having
a discernable and abrupt effect on the economy. While and profitability in 2020.
the full effect of the COVID-19 pandemic is yet unknown,
1
Some sectors, like defense-oriented businesses, are less • A shortage of experienced project managers and a
sensitive to recession because they are less reliant on decrease in training spend per full-time equivalent
the credit markets, consumers and commercial markets. (FTE) is having a detrimental impact on successful
It is also clear that government stimulus plans will help delivery.
to offset some effects of a recession, as Washington, • Failure to utilize top technology and software tools is
D.C., attempts to inject liquidity into the marketplace impeding progress in all functions, particularly project
and spur economic activity. As of the publication of this management and human capital management.
Study, the details of the stimulus’ applicability to the
government contracting sector are not yet known. The 11th Annual Deltek Clarity Government Contracting
Industry Study is full of information from a wide variety
At a high level, there were several key challenges identified of businesses, from all sizes and U.S. geographies.
in this year’s Study that resonated through all sections: Please take the time to review the data and information
contained in this Study in order to evaluate how your
• Government contractors continue to struggle to find,
company’s functions and progress compare with
attract and retain a highly qualified workforce while
your peers and competitors. It is our hope that this
competing with commercial sectors for the best and
information will help guide your decisions in 2020 and
brightest.
contribute measurably to your go-forward success.
• Tools such as Microsoft® Excel – and even paper – are
still widely used in an attempt to comply and cope
with increasing complexity and growing regulatory
demands.
2
About This Study
Deltek conducted an online survey of government contracting companies to gain an
understanding of the key issues and trends affecting the market and forecasts for
2020. The survey was developed in close consultation with industry experts.
Areas of interest include business development,

finance and financial compliance, project and risk The findings of this survey
management, human capital management, contract
management and procurement, information technology
reveal a concise picture of
(IT) and manufacturing. The findings of this survey
reveal a concise picture of challenges, opportunities
challenges, opportunities
and benchmarks for government contractors. and benchmarks for
The survey was developed in partnership with CMG
Consulting, which conducted the online survey
goverment contractors.
with executive decision makers at government
contracting companies. The Study was fielded
between January 6, 2020 and March 2, 2020.
3
Businesses that participated in the Study comprise The three largest industry functions captured in the 2020
a wide range of size and industry specializations: Study were IT (25%), professional services (19%) and
defense, weapons, aerospace or manufacturing (16%).
• Thirty-eight percent (38%) of respondents were active
in both federal and SLED (state, local, kindergarten Geographic locations of the respondents were also
through grade 12, and higher education) markets, diverse.
while 55% were active only in federal business. Seven
percent (7%) were limited to the SLED sector. • 44% were from the Washington, D.C., Maryland and
Virginia area
• Revenue size was diverse. Companies with less than
$20 million in annual revenues — referred to as small • 21% were from the Southern United States
businesses moving forward — represented 44% of • 16% from the West
participating companies. Companies with annual • 8% from the Northeast
revenues between $20 million and $99.9 million,
or medium-sized companies, represented 25% of • 10% from the Midwest
participants. Lastly, companies with annual revenues
between $100 million and $999.9 million and those
with more than $1 billion accounted for 16% and 14%,
respectively. These last two categories have been
combined and will be referred to as large companies
throughout the Study.
4
Executive Summary
At the time the 11th Annual Deltek Clarity Government Contracting Industry Survey
was in field, industry growth had been steady over several years, with respondents
indicating positive expectations for continued strong financial performance.
Since the completion of the Survey on March 2, 2020, Close attention to fundamentals will be essential to
however, the COVID-19 pandemic has affected the strong performance and solid recovery for all companies.
economy and how people work, and it is yet unclear how Now that there is a high degree of uncertainty, it is
lasting those changes may be. Consensus expectations more important than ever to monitor and understand
call for significant negative growth in the second half of the metrics in this Study. Assessing and managing risk,
2020, and there is not yet a clear path to recovery. protecting profit-margins and maintaining critical staff
levels will be key while businesses navigate the short- and
The good news for government contractors is that long-term impacts.
this sector generally outperforms other industries
significantly, particularly in times of economic crisis,
given the degree of shielding these businesses have
from credit markets, the consumer marketplace and the
broader economy. Commercial sectors of government
contracting businesses, however, are likely to be more
severely affected by economic weakness and uncertainty.
There is an ongoing struggle for talent.

Managing the workforce in this industry requires new thinking about recruiting,
retention, compensation, training, and generational changeover. An inability
to recruit and retain the best and brightest will hamstring other efforts to
achieve growth and maintain profitability. The industry is not making the
investments necessary in an intensely competitive environment and may
be tracking the wrong key performance indicators to do so. Investment in
training and development is needed, particularly within the project and risk
management functions.
Compliance with ever-increasing regulation is a burden that

cannot be ignored.
Many companies are still trying to use tools such as Microsoft Excel – and even
paper – to comply and cope with increasing complexity and growing regulatory
demands. Companies must improve their training, processes and software in
order to achieve operational excellence and compliance.
5 Deltek | Clarity Government Contracting Industry Study

Data availability is growing.
Companies are tightly focused on analyzing and extracting value from data
using artificial intelligence and machine learning. The companies that apply
their learning to improve quality, project execution and operations will prevail.
Information technology and data security are a key focus,

along with satisfying government system security and
regulatory requirements.
Cybersecurity incidents, mostly in the form of technology viruses, continue
to increase, although at a slower rate. In order to mitigate security breaches,
businesses are prioritizing IT investments in two areas: “security and
authentication” and “accounting and finance.” Migration to the cloud
continues, but investment in tools is still lower than needed.
Diversification is a go-forward objective that encompasses

both product set and customer type.
Companies are focused on obtaining new offerings and gaining access to
new customers, and indicated a desire to continue pursuing those goals,
particularly with merger and acquisition (M&A) activity. That said, the current
environment is likely to have a heavy influence on some companies’ willingness
to utilize cash to pursue those goals in the near-term, while others may
choose to hold off on selling in the interest of allowing valuations to steady
later in the year.
Deltek | Clarity Government Contracting Industry Study 6

Government Contractor
Confidence Index
The composite Government Contractor Confidence Index (GCCI) indicates high
confidence in public sector sales for the coming year.
The GCCI measures overall confidence that government This year’s Study shows a GCCI score of 143.0, which
contractors can grow their public sector sales over the is an increase of 3.4 points from 139.6 in 2019. This
next 12 months. The GCCI is measured on a scale of zero score reflects strong confidence in the market and an
to 200, with zero indicating the lowest confidence level, expectation on the part of business leaders that growth
100 indicating neutral confidence, and 200 reflecting the in government sales is expected to be sustained and
highest confidence. strong. However, the recent COVID-19 outbreak and
subsequent economic effects can be expected to
The calculation is based on a series of questions regarding impact respondents’ expectations and grading of the
government sales in the last 12 months and respondents’ government contracting space.
overall impression of the spending environment. While
the index is subjective based on opinion, it is indicative of
the level of risk business leaders see in the marketplace.
Government Contractor Confidence Index
100
143.0%
0 200

SECTION ONE
Business
Development
Government market sales were the same or higher than a year ago. At the time of the
Study, a significant majority (70%) of respondents believed that government sales
would be higher in 2020. Growth expectations remained high.
The onset of the COVID-19 pandemic is likely to have substantial effects on 2020 performance. The ability to predict
when the economy can transition back to a more normal state is uncertain. It is likely, however, that substantial stimulus
dollars will make their way to the government contracting sector. This will be true not only in federal markets, but also in
SLED (state, local, kindergarten through grade 12, and higher education) sectors. Typically, SLED contracts are funded
through federal programs and executed at the local level. This is likely to be the case with stimulus dollars as well.
Limited business development resources continue to limit the agility required to compete in an environment where
faster responses to task order vehicles are required. Contractors’ customers are also using contract vehicles with which
they are not associated, limiting the ability to compete.
Key Takeways
The top three business development Large businesses had the highest win
challenges (“limited business rate of 45%. Medium-sized businesses
development resources,” “increased experienced the biggest decline (35%
59% competition,” and “customer using

contract vehicles we are not associated
with”) remain consistent with last year’s
versus 42% year-over-year), suggesting
a sharper effect from increased
business development challenges. The
challenged by limited
business development results. However, there was a significant small business win rate remained the
resources uptick (44% versus 34% year-over-year) same (40% versus 41% year-over-year).
in the category of “not enough time Average pipeline multiples fell from
to assemble high-quality responses 5.4 to 4.5, indicating fewer contracts
for RFPs and RFIs.” Companies are needed to achieve sales objectives
looking to increase investment and and that pipeline quality should be
46%
better understand requirements and evaluated regularly. The trend toward
opportunities earlier in the bidding contract consolidation, which drives
process. more contracts to master agreements,
of participants are plagued
may be misleading in evaluating pipeline
by increased competition Relationships are key to business multiples.
development because they facilitate
identification of opportunities and In 2019, the improvement process
widen the range with diverse contract began, with medium-sized and large
vehicles. Teaming relationships should businesses adding dedicated full-
80%
be in place, rather than sought for a time employees to identify and target
specific opportunity. opportunities faster. Though business
development resources continue to
want to understand Overall win rates declined slightly in
opportunity requirements be limited, the investment outlook for
2019 compared to the previous year 2020 is positive, with 58% of companies
sooner
(40% versus 43% year-over-year). planning to increase resources.

Areas of Government Business
The breakdown between companies doing business with are bid at the federal level but executed through state
the federal government and those doing business at the and local governments and agencies. Companies may
SLED level remained largely consistent with last year. also find new areas of opportunity in the SLED market if
appropriate contract vehicles are identified.
Most companies (93%) conduct business with the federal
government, compared to 7% operating exclusively in Consolidation of contracts may disadvantage small and
the SLED market (4% reported last year). However, 38% medium-sized businesses, but mergers and acquisitions
of companies participate in both the federal and SLED (M&A) may provide greater critical mass to succeed in
sectors. This may be due to the fact that many contracts changing markets.
Areas of Government Business
55%
38%
7%
Federal Both Federal State, Local, K-12,

and SLED or Higher Ed (SLED)
Revenue from Government Business

The percent of revenue received from government business remained consistent across all business sizes in 2019,
except for a decrease for medium-sized businesses (24% versus 30% year-over-year) that corresponded with an
increase for small businesses.
Revenue from Government Business
28%
Less than $20 million
48% $20–$99.9 million
More than $100 million
24%

Win Rate
The overall win rate in 2019 decreased slightly to an A high win rate is not the only indicator of long-
average of 40% compared with 43% the prior year. The term success. It could mean that a company is too
decrease was driven by reported declines from both conservative in identifying opportunities, either
medium-sized and large businesses. Small businesses identifying too few, or a problematic method of pursuit.
held steady at a 40% win rate. Win rates based on dollar value versus number of
contracts can vary dramatically. Companies’ business
Medium-sized businesses saw a decrease from 42% development key performance indicators (KPIs) should
to 35% year-over-year, which may indicate increased reflect their growth objectives and strategies.
difficulty operating in more fragmented and competitive
markets.
Average Win Rate
Companies should understand both their current and
desired win rate in order to adjust business development 45%
strategy appropriately. Bidding on familiar business that 40% 40%
35%
has a higher probability of success should be evaluated
against opportunities that move up the value chain but
might be less winnable. Once decisions are reached on
which opportunities to pursue, understanding the effect
this will have on the pipeline multiple is just as important.
It is crucial to understand how often the pipeline needs to
Small Medium Large Overall
turn to generate forecasted sales.
Win Rate Change
Small 12% 30% 35% 14% 9%
Medium 7% 28% 26% 28% 10%
Large 13% 38% 38% 10%
Overall 11% 32% 33% 17% 7%
0% 20% 40% 60% 80% 100%
Increased significantly Increased slightly Stayed the same Decreased slightly Decreased significantly

Sales in Government Markets
In last year’s Study, optimism reigned in the outlook A bright outlook for 2020 carried over from 2019,
for 2019. An overwhelming percentage of respondents with 94% of respondents looking for increased (70%) or
expected higher or stable government sales. These stable (24%) sales. It is yet unknown how this outlook may
expectations proved to be accurate, as revenues from be affected by the COVID-19 pandemic.
government markets remained about the same in 2019.
Past Year’s and Next Year’s Government Market Sales
6%
14%
Lower 24% Lower

43% Past Next About the same
About the same
Year Year Higher
Higher
43% 70%
Average Revenue Generated from Top Three Customers

A high percentage of business comes from the top three that strong customer relationships lead to a stable base
customers. This is particularly striking in that on average, of business. The potential bad news is that over-reliance
respondents indicated their largest customers were on a small number of customers can be negative if those
responsible for nearly half (47%) of their net revenue, relationships fall apart or need to change based on the
with the second and third largest customers generating environment.
an incremental 28% of net revenue. The good news is
48% 47% 46%
18% 19%
17%
12% 13%
10%
Small Medium Large

Top Business Development Challenges
Perceptions of the top three business development highlight the need for more dedicated staff, tools and well-
challenges remained unchanged this year, with “limited established business relationships that are in place before
business development resources,” ranking first at the opportunity presents itself. In the category of “not
59%, followed by “increased competition,” (46%) and able to find appropriate partners,” 22% of respondents
“customer using contract vehicles we are not associated identified this as an important challenge, up from 19% last
with,” (46%). It is interesting to note that “increased year. Inter-functional challenges within companies also
competition,” slipped from 57% to 46% in the lineup of appear to be impeding business development, with issues
concerns. Importantly, there was a 10-point jump to 44% such as “need for improved sales support,” and “inability
in the fourth category, “not enough time to assemble to effectively share company knowledge,” highlighting
high-quality responses for requests for proposal (RFPs) weaknesses that need to be addressed.
and requests for information (RFIs).”
With increasing adoption of task order vehicles, fast

responses are required. Companies sometimes have as
little as two weeks to identify and bid for an opportunity,
requiring a much higher level of agility. These changes
Top Business Development Challenges
Limited business development resources 22% 19% 18% 59%
Increased competition 19% 14% 13% 46%
Customer using contract vehicles we are not

associated with 19% 15% 12% 46%
Not enough time to assemble high-quality

responses for RFPs and RFIs 12% 16% 16% 44%
More restrictive spending environment 6% 10% 11% 27%
Not able to find appropriate partners 6% 9% 7% 22%
Need for improved sales support 7% 8% 5% 21%
Inability to effectively share company knowledge 5% 4% 7% 16%
Time-consuming forecasts and reporting 5% 3% 6% 14%
First Second Third

Addressing Top Business Development Challenges
The top two initiatives cited by respondents in addressing extremely fast responses from companies. Teaming
top business challenges center on understanding partner relationships must already be established
the requirements of opportunities faster (80%) and if a company wants to compete. Agility in business
developing effective mechanisms to find and identify development is a trend that is becoming increasingly
better quality opportunities (78%). The third most-cited important.
way to address business development challenges was
“expansion into other government agencies outside The pandemic may cause temporary disruption in
existing customer bases,” (75%). the market, which may benefit some contractors and
negatively affect others. The stimulus dollars that reach
The fourth highest response, “more or better teaming the industry will have differing impacts based on the
and partnering methods or approach,” went up from 61% government’s prioritization.
to 70% year-over-year. New tasking vehicles are requiring
Addressing Top Business Development Challenges

Better understanding of opportunities and their
requirements earlier in the process 49% 31% 80%
More or better opportunity identification 37% 41% 78%
Expanding into other government agencies

outside of our existing client base 40% 35% 75%
More or better teaming and partnering

methods or approach 21% 49% 70%
Increasing staffing to support sales and

business development 25% 39% 63%
rem ipsum Improved use of existing company knowledge

20% 41% 61%
and materials
Improved sales process and/or systems to
improve effectiveness 20% 34% 54%
More or better GWAC, IDIQ, and/or multi-award

contract management 22% 31% 52%
New tools or systems to improve efficiency* 19% 30% 49%
Improved analytics and/or understanding of

the sales process 13% 30% 44%
Acquisition of partners, competitors, and/or

other firms 14% 29% 43%
Exploration of new markets outside of

government market 19% 21% 40%
Most important Important
* (such as proposal creation, reporting, and CRM automation)

New Opportunities Identification
The top sources of new opportunities are “active “website searches,” (42%). “Business development staff”
customer relationships,” “teaming partners and accounted for 71% of new opportunity identification,
networking,” and “Requests for Proposals/Requests which implies a high rate of return on investment in
for Qualifications.” Only 33% of opportunities were dedicated staff.
“marketing-generated leads,” which rated lower than
Sources to Identify New Opportunities
Active client relationships 83%
Teaming partners/networking 77%
Requests for Proposals/Requests for Qualifications 77%
Public bid notices such as SAM.gov 73%
Business Development staff 71%
Industry conferences and events 68%
Market Intelligence Databases (e.g., GovWin IQ) 66%
Staff-identified leads 65%
Website searches 42%
Marketing-generated leads 33%

Top Criteria for Sourcing and Selecting Teaming Partners
The top three criteria for sourcing and selecting teaming The existence of partnerships with proven capabilities is
partners are “past performance/experience,” (73%, important in an atmosphere of speed accompanied by
unchanged), “capabilities,” (63%, down from 73%) and price sensitivity. While rated toward the bottom, the need
“customer relationship,” (55% up from 47% last year). for culture consistency should not be underestimated.
When there is cultural consistency, teams typically
“Company reputation/stability,” is rated at 44%, or fourth, work faster and more efficiently. Achieving these types
in terms of importance in the selection process. of relationships may be a particular challenge for small
businesses with limited resources.
Top Criteria for Sourcing and Selecting Teaming Partners
Past performance/experience 22% 30% 21% 73%
Capabilities 29% 17% 17% 63%
Customer relationship 19% 21% 15% 55%
Company reputation/stability 15% 15% 14% 44%
Socioeconomic status 7% 9% 11% 26%
Cost 3% 4% 12% 20%
Cultural fit 5% 4% 9% 19%
First Second Third

Expected Investment in Business Development
Despite the clear need for upgrading dedicated business businesses expect an increase. Interestingly, many
development staff and tools, only 58% of companies plan companies still rely on generic tools, such as Microsoft
to increase their existing level of investment in business Excel, rather than specialized products, to manage their
development. Sixty-six percent (66%) of medium-sized business development activities.
Expected Investment in Business Development
Small 51% 47%
Medium 66% 31% 3%
Large 62% 37%
Overall 58% 40%
0% 20% 40% 60% 80% 100%
Increase Stay the same Decrease

CLARITY OUTLOOK
Business
Development
The COVID-19 pandemic significantly clouds the outlook for 2020. It is unknown how
much this will stretch out procurement and contract awards. It is also unknown to
what extent this may impact revenue recognition as some contracts temporarily slow.
How companies behave during this period will determine how well they bear the brunt
of the economic downturn.
Before the pandemic, government contractors exited Early identification of opportunities improves the
2019 with a rosy outlook for 2020, with an expectation of ability to win, as do strong customer relationships
continued revenue growth and strong profit margins. The and diversification of the business portfolio. These
top five markets in which respondents expected growth capabilities will be particularly important in the current
include federal, IT, professional services, aerospace and uncertain business environment. The ability to quickly
defense, and SLED. identify opportunities and respond fast will separate
the successful companies from those that can’t move
beyond their current market position.

SECTION TWO
Finance and
Financial Compliance
Businesses reported healthy revenue growth and profit margins in 2019 and are
strongly focused on protecting their financial fundamentals in 2020. There are new
uncertainties to consider as a result of the COVID-19 pandemic.
Companies can use this time to address areas of opportunities and disruptions to their financial health. Monitoring key
metrics and re-evaluating plans, budgets and strategies to adjust for a new reality will help companies fare better than
those that do not adapt.
Generally, companies are effectively controlling costs, but the costs of compliance are rising. More labor hours and more
full-time employees are required to meet compliance requirements that have grown in number as well as complexity.
With ever-increasing regulations, this trend is likely to continue, so exploration of tools and methods to reduce these
costs would be an excellent time investment.
Key Takeways near term. Eliminating inefficiencies

in areas such as conducting audits,
Protecting cash flow will require month-end closes, cost allocations, and
58% keen attention in coming months

as the nation recovers its economic
momentum. Reducing days sales
reconciliations reduces the amount
of time and resources required to
are focused on increasing complete repetitive tasks. That allows
profitability outstanding (DSO), particularly financial professionals to spend more
for small businesses, will make the time identifying problem areas that the
difference between maintaining key business needs to address.
cash levels at a critical time and coming
up short. Companies that are new to Mergers and acquisitions was an area of
contracts, or working for the first time strong interest for survey participants,
65%
with a particular government agency, with an emphasis on buying. That said,
may find that payments could slow. the effect the pandemic is likely to have
While the Defense Authorization Act on company valuation may create a
aim to diversify the
mandating that prime contractors pay “wait and see” environment. However,
customer base
their subcontractors faster will certainly the potential exists for companies to
help small firms navigate these waters, build their critical mass and diversify
nothing is as important as building into new areas, should possible
relationships with customers. Doing so sellers become willing to accept lower
will ensure invoices can be trusted and valuations.
will likely alleviate potential payment
delays.
Finance departments should work to

streamline processes in order to provide
faster insights into the business in the

Profitability Among Survey Respondents
Companies achieved healthy growth in average profit The median profit margin over the last eight years has
margins in 2019. Small businesses improved by 27%, while been largely consistent, ranging from 8% to 10% overall.
large businesses increased nearly 60% compared to the In both 2018 and 2019, the median profit margin was 8%,
previous year. which is healthy in a heavily regulated business.
Average Profit Margin
19%
11%
9%
Small Medium Large
Median Profit Margin: Eight-Year Trend
10% 10%
9% 9%
8% 8% 8%
6%
2012 2013 2014 2015 2016 2017 2018 2019

Growth Rates
Growth projections for fiscal year 2019 that were made in Prior to the current pandemic, companies were
fiscal year 2018 were accurate across all business sizes. optimistic. Small businesses reported a robust outlook
Small businesses outperformed their forecasts, realizing for 2021, expecting a growth rate of 24% over their 2020
growth of 22%, compared with a projected 2019 increase fiscal year targets. Medium-sized companies were still
of 14%. bullish at 11%, while large companies looked for 7% growth,
representing brisk expansion.
29%
24%
22%
16%
11%
9%
7% 7%
6%
2019 (actual) 2020 (projected) 2021 (target)
While growth has slowed since 2017, the industry still reported an expected expansion – at the time of the survey – of 9%
in fiscal year 2020. While stability is a key feature of the government contracting sector, it is still unknown how this growth
rate will be affected.
Median Growth Rates and Profit Margin: Eight-Year Trend

15%
10%
5%
0%
2012 2013 2014 2015 2016 2017 2018 2019
Growth Profit

Unallowable Costs
In fiscal year 2019, medium-sized companies saw an reporting unallowable costs is fundamental. Companies
increase of 78% year-over-year. Large companies’ that are remiss not only violate rules and regulations of
unallowable costs more than doubled from 2018 to 2019. contracting, but also risk failure to be paid or exclusion
from other contracts.
Managing this metric requires close attention, particularly
during a time of economic unpredictability and potential
revenue shrinkage. Closely tracking and accurately
Average Unallowable Cost Rate
3.2%
2.1%
2.0%
Small Medium Large
The trend in median unallowable cost rate remained flat overall compared with the prior year, finishing at about
1% of revenue.
Median Unallowable Cost Rate: Three-Year Trend
3%
1% 1%
2017 2018 2019

Average Composite Fringe and Overhead Rates
While large businesses tend to have higher average overall that companies should offer the right benefit and
composite fringe rates, the delta between small and large compensation packages to attract candidates and retain
businesses in 2019 was only four percentage points. This employees.
was down from 12 percentage points in 2018.
Since fiscal year 2018, small businesses have seen a
Large businesses appear to be reducing fringe rates, 10% increase in average overhead rates, which may
which may be a questionable strategy. While it could correspond with higher revenues. Large businesses
reduce costs in the near-term, the gain may be at the reported a decline of 20% during the same period,
expense of investing in talent and employee training. implying an increase in productivity.
The continued competition for talent would suggest
Average Overall Composite Overhead Rate
44%
30%
25%
Small Medium Large
Average Overall Composite Fringe Rate
31%
29%
27%
Small Medium Large

Median Fringe and Overhead Rates
For each of the last four surveys, the median fringe rate has consistently been between 28% and 31%. The median
overhead rate dropped four percentage points in 2019 compared with 2018. Profitability has benefited from effective
cost control.
Median Fringe and Overhead Rates: Eight-Year Trend
100%
80%
60%
40%
20%
0%
2012 2013 2014 2015 2016 2017 2018 2019
Fringe rate Overhead rate

Factors That Influence Cash Flow
Faster collection of receivables is a factor in successful Average Monthly Invoice Cycle
cash flow management. In both small and large
companies, the average monthly invoice cycle reported 17.7
by respondents increased by roughly two days over 2018.
14.2
For medium-sized companies, the reported invoice cycle 12.4
dropped by about three days over the same period. Each
day that a company can gain throughout the invoice cycle
translates to an improved cash flow position.
Small Medium Large
Average Days Sales Outstanding

Average days sales outstanding (DSO) increased by
46.4 48.0
nearly seven days (17%) for small businesses in 2019,
39.9
likely offsetting the benefit of a faster invoice cycle. Large
businesses saw DSO increase by nine days (23%) over the
same period. This trend is not indicative of businesses
increasing their abilities to effectively manage and
maintain a strong cash flow.
Small Medium Large
In fiscal year 2019, the median of average DSO increased by roughly five days (14%), while the median monthly invoice
cycle remained flat at 10 days between the end of a billing cycle and invoice submission. Shortening the invoice cycle
would create positive efficiencies and improve cash management.
DSO and Monthly Invoice Cycle: Eight-Year Trend

50
40
30
20
10
0
2012 2013 2014 2015 2016 2017 2018 2019
Average days sales outstanding Monthly invoice cycle

Trends in Federal Contracts
Overall, survey respondents indicated a greater degree degree of difficulty in planning and forecasting both
of volatility in the number of federal contracts awarded revenue and costs. This volatility was reported by
in the last 12 months, which tends to also increase the businesses of all sizes.
Change in Federal Contracts
Small 3% 38% 42% 11% 6%
Medium 6% 30% 48% 9% 6%
Large 4% 52% 26% 15% 4%
Overall 4% 39% 40% 11% 6%
0% 20% 40% 60% 80% 100%
Increased significantly Increased somewhat Stayed the same Decreased somewhat Decreased significantly
Similar to the change in federal contract awards, by respondents. The increase was driven by medium-
respondents indicated changes at the extremes in terms sized businesses, with large businesses indicating a
of increasing and decreasing levels of indefinite delivery, greater decrease in IDIQ revenue recognition. Companies
indefinite quantity (IDIQ) revenue in fiscal year 2019. may have significant IDIQ revenue in backlog, but their
Fortunately, changes were more positive than negative, inability to predict the rate at which that will flow through
but the difficulty in predicting IDIQ revenue is highlighted their businesses increases uncertainty.
Change in IDIQ Revenue
Small 6% 27% 55% 6% 5%
Medium 9% 24% 58% 6% 3%
Large 4% 23% 58% 8% 8%
Overall 7% 26% 56% 7% 5%
0% 20% 40% 60% 80% 100%
Increased significantly Increased somewhat Stayed the same Decreased somewhat Decreased significantly

Top Finance Challenges
The 2019 survey saw responses that were more or finance staff,” and “switching to a new accounting
concentrated across a narrower group of selections, system.” As many as 24% of companies indicated they
with particular focus on “increasing profitability,” and still use tools like QuickBooks® and basic spreadsheets
“organic topline growth,” compared with the 2018 survey. for financial management and reporting, which is limiting
“Increasing cash flow,” “reducing costs,” and “having more their ability to monitor key performance indicators,
predictable financial performance,” were key concerns. manage risk and compliance, and swiftly react to changing
economic drivers. In contrast, integrated financial tools
Administrative concerns were of lower – but not designed for government contractors provide greater
insignificant – interest. Companies also cited several visibility and insights to support informed business
other needs like “managing subcontractor invoices, decisions.
purchase orders and payments,” “training new accounting
Top Financial Challenges
Increasing profitability 25% 17% 16% 58%
Organic topline growth 22% 9% 9% 40%
Increasing cash flow 11% 12% 11% 33%

Increasing efficiency of invoicing,
accounting, and planning operations 11% 9% 11% 30%
Reducing costs 9% 12% 7% 28%

Having more predictable financial
performance 5% 11% 8% 23%
Increasing the valuation of the company 5% 9% 9% 22%

Understanding and implementing new
compliance requirements 5% 3% 8% 16%
Managing subcontractor invoices,
purchase orders and payments 4% 8% 13%
Training new accounting or finance staff 3% 5% 5% 12%
Switching to a new accounting system 3% 7% 12%
Managing M&A activity 3% 5% 9%
First Second Third

Addressing Top Finance Challenges
In an effort to increase growth and profitability, 65% of Companies should continue to address diversification
respondents cited “diversification into new customers and cost controls in order to protect financial
(agencies),” as their top priority. Forty-three percent performance. Additionally, companies would be wise to
(43%) indicated they were looking for “better qualification revisit their strategic planning process and budgeting for
of new opportunities for profitability,” along with “a better the balance of 2020 and 2021, given possible impact from
focus on billable and non-billable utilization.” current events.
Addressing Top Finance Challenges
Diversification into new customers (agencies) 65%
Better qualification of the profitability potential for

new opportunities 43%
Better focus on billable and non-billable utilization 43%
Diversification into new markets 39%
Investing in the project management discipline 33%
Investing in business intelligence (uniform KPIs

across the business) 28%
Diversification into new product lines 26%
Implement a new project accounting solution 19%
Cap or reduction of benefits 9%

Top Digital Financial Challenges
An emphasis on controlling costs in fiscal year 2018 on the continuing digitization of information, tools and
shifted more broadly in 2019 to include “optimizing resources. Going forward, companies should prioritize the
human capital,” “leveraging new technologies,” and evaluation of their financial management and reporting
“integrating information systems.” Process optimization tools to identify opportunities to improve processes and
and project performance management rely increasingly gain efficiencies.
Top Digital Financial Challenges
Controlling costs 14% 16% 15% 45%
Optimizing human capital 16% 13% 10% 38%
Leveraging new technologies 13% 12% 13% 38%
Integrating information systems 15% 12% 9% 36%
Process optimization 12% 9% 12% 33%
Project performance management 8% 9% 12% 28%
Managing growth 9% 9% 9% 27%
Managing risk and compliance 8% 11% 8% 27%
Cash management 5% 8% 15%
More successful M&A 5% 7%
First Second Third

Compliance
The survey asked respondents for information about which still require time and energy to produce reports and
audits in 2019, and their answers revealed roughly comply with requirements. This is not a shift away from
the same rank order of challenges stemming from governance and oversight on the part of these agencies.
audits in 2018. While, in aggregate, the total number
of reported audits in 2019 remained the same versus Audit activity by business size on a year-over-year basis
2018, respondents indicated that Defense Contract appears to have been relatively unchanged in 2019.
Audit Agency (DCAA) audits dropped significantly as a Government oversight is seen as increasing by fewer
component of their audit activity, from 49% to 33%. Every respondents than the previous year, and some even note
other category of audit except for ASC 606 (a revenue a decrease in oversight. The costs of compliance may
recognition standard) was reported to have decreased in reflect fewer on-site audits, but the reality is that existing
incidence, year-over-year, which is potentially the result (and new) regulations continue to require administrative
of a shift away from on-site audits by agencies. On-site attention and investment to ensure compliance.
audits are being supplemented by data submissions,
Types of Audits in Past Two Years
DCAA 33%
Internal controls 28%
ICS (Incurred Cost Submission) 25%
Pre-award cost accounting system 25%
DCMA (Defense Contract

Management Agency) 16%
Floor check 13%
Forward pricing 10%
CPSR 7%
ASC 606 4%
Other 13%

Number of Audits
5.0
2.3
1.6
Small Medium Large
Change in Government Oversight
Small 8% 13% 74% 3%
Medium 27% 61% 9% 3%
Large 12% 35% 46% 4% 4%
Overall 7% 22% 64% 5%
0% 20% 40% 60% 80% 100%
Increased significantly Increased slightly Remained the same Decreased slightly Decreased significantly

Hours and Costs Spent on Government Audits
Given that the number of audits performed was reported percentage of respondents indicating compliance costs
to be relatively flat versus the previous year, the costs had increased, with only 20% indicating compliance was
of compliance stemming from those audits shifted by “moderately costly,” “very costly,” or “extremely costly.”
business size in fiscal year 2019. Respondents from Around 16% of small businesses, however, responded
large businesses indicated a greater degree of “slightly that costs of compliance were “very costly,” or “extremely
costly,” and “not at all costly,” compared to a year ago. costly,” up from 7% a year ago.
Similarly, medium-sized businesses saw a decrease in the
Hours Spent on Government Audits
Small 63% 33% 3%
Medium 18% 57% 25%
Large 42% 58%
Overall 38% 41% 21%
0% 20% 40% 60% 80% 100%
40 hours or less 41–160 hours 161 hours or more
Cost of Compliance
Small 24% 30% 30% 14% 3%
Medium 28% 52% 12% 7%
Large 18% 45% 25% 12%
Overall 23% 41% 23% 11%
0% 20% 40% 60% 80% 100%
Not at all costly Slightly costly Moderately costly Very costly Extremely costly

The cost of compliance is expected by half of the respondents in large companies to increase, while fewer small and
medium-sized businesses expect these costs to increase.
Small Medium Large
4%
42% 41%
50%
56% 56% 46%
Increasing Increasing Increasing

Staying the same Staying the same Staying the same
Decreasing Decreasing Decreasing
Top Audit Challenges

Nearly half of 2019 survey respondents named “indirect “Internal control systems,” continued to occupy the
rates,” in their top three challenges. “Labor and number three position, indicating a possible need to
timekeeping,” saw a significant increase year-over-year, upgrade systems and tools. In view of the high cost
while “billing,” and “consultant fees,” declined overall of audits, any decrease in the complexity and cost of
in rank. tracking and analysis would be a positive step forward.
Top Audit Challenges
Indirect rates 21% 16% 10% 48%
Labor and timekeeping 13% 18% 12% 44%
Internal control systems 13% 8% 15% 36%

FAR clauses on contracts and
subcontracts 12% 10% 10% 31%
Unallowable costs 7% 10% 13% 30%
Pre-award cost accounting system 7% 9% 6% 21%
Billing 5% 10% 7% 21%
Bonus and other incentives 8% 5% 14%
CAS compliance 7% 5% 2% 13%
Consultant fees (including legal) 7% 5% 13%
Executive compensation 4% 4% 6% 13%
CPSR 3% 4% First Second Third

Addressing Top Audit Challenges
On a year-over-year basis, the rank order of audit better qualified/experienced people,” while 20% named
remediation methods was largely the same, with “investing in business systems training.” It is clear that
respondents indicating a broader recognition of methods there are opportunities for improvement through staffing,
in 2019. A quarter (25%) of respondents cited “hiring training and tools.
Addressing Top Audit Challenges
Conducting internal audits 38%
Hiring a third party to assist in compliance

and audits 27%
Assigning dedicated resources 26%
Hiring better qualified/experienced people 25%
Re-engineering business process 23%
Investing in business systems training 20%
Investing in regulatory training 14%
Obtaining business systems validations 14%
Investing in purpose-built applications 9%

CLARITY OUTLOOK
Finance and
Financial Compliance
Heading into 2020, the overall financial health of the government contracting industry
was strong, with stable growth and solid profit expectations. The uncertainty generated
by the COVID-19 global pandemic will have an impact on those early expectations for
2020 and likely into 2021.
Businesses are aware of the need for cost control and drive growth. Changing valuations and cash needs may
compliance with government oversight, but the COVID-19 open new opportunities later this year or next.
pandemic is an anomaly that cannot be adequately
evaluated yet. During the period, while the economy is The number of audits is largely constant across all
operating at a highly reduced capacity, businesses should business categories, while the cost of complying with
revisit their strategic planning and budgeting processes, audits is expected to continue increasing. Companies
and monitor the market. should evaluate their staff numbers and capabilities, along
with their systems and tools, to maximize audit success
Diversification is a go-forward focus for many respondents and efficiency.
to build a broader revenue base. Mergers and acquisitions
activity was on the radar for many companies at the time Protecting cash flow must be a key focus during this
this survey concluded in early March, but the current period. Days sales outstanding and the time required to bill
environment will likely drive a “wait and see” approach for have already increased. Companies need a keen focus on
companies reconsidering how to best use their cash to cash flow management in 2020.

SECTION THREE
Project and
Risk Management
Improvements in project forecasting and project management training and
development are necessary to improve the effectiveness of the project management
and risk management functions.
Businesses are recognizing that greater investment in training is needed to close the gap between more experienced
project managers and those with limited project management experience. Project management tools are largely
outdated, with many relying on manual methods for critical roles in risk management and resource scheduling. As
needs continue to grow and the institutional knowledge of more experienced project managers becomes displaced
by resources with less experience, robust and impactful tools will be needed to address a growing set of complexities
across delivery and regulatory compliance.
Key Takeways
Companies are aware, to varying specialized training, development and
5% degrees, of the importance of discipline

in project and risk management and
continue to invest in developing
implementation of best practices,
and ensuring that projects are tracked
more formally by both managers and
decline in projects on or
under budget resources and improving project software.
management tools. That said,
more emphasis may be needed as The results in this year’s human capital
contractors in medium-sized and large management survey section reflect
businesses experienced slippage in the the across-the-board challenge
average percentage of projects at or of recruiting, training and retaining
48% under budget in fiscal year 2019. qualified staff, particularly in project
management. As generational
Respondents indicated growing changeover continues, knowledge
cite accurate project
cost forecasting as a top
awareness that “accurate project transfer will become more important
challenge cost forecasting,” must be a top to achieving and maintaining seamless
priority followed by “collaboration project management.
and communication,” and the
challenge of “inexperienced project
managers.” Companies plan to address
these execution challenges with
tactics that focus on investments in
50%
intend to invest in training
project managers
35
Project Management Status
The average percentage of projects on or under budget only about three quarters (74%) of projects on or under
declined by 5% year-over-year. Respondents from budget. These results have negative implications for cost
medium-sized and large businesses reported substantial control, financial performance and customer satisfaction.
declines from fiscal year 2018. Large businesses reported
Average % of Projects On or Under Budget
86%
77%
74%
Small Medium Large
Companies reported modestly improved performance projects are on or ahead of schedule, a decrease of six
in meeting schedules compared with fiscal year 2018. percentage points from last year. Improving scheduling
Overall, the percentage of projects on or ahead of best practices and assessing risk to project timelines
schedule increased two percentage points year-over- will allow project managers to proactively adjust before
year, with small businesses achieving an increase of 8%. problems arise.
Large businesses, however, indicated that only 67% of
Average % of Projects On or Ahead of Schedule
84%
74%
67%
Small Medium Large

Top Project Management Challenges
Responses to 2019’s survey reveal a number of challenges Approximately a third of respondents viewed “scope
related to project management. The ability to “accurately definition,” “accurate timeline forecasting,” and
project cost,” is the top concern noted (48%), with “insufficient project management procedures,” as
“inexperienced project managers,” the third highest concerning. Sixteen percent (16%) are concerned by
concern (39%). the “software tools available,” and when combined with
inexperienced project managers, this increases the
“Inexperienced project managers,” is a top concern chances of projects falling behind schedule and finishing
of both government contractors and the contracting over budget.
officers they serve. The ability to meet project milestones
will determine the pace at which a contractor receives
payments and qualifies for incentives. Once a project is
off track, it is difficult to recover. As a result, companies
may experience damage to their reputation and impair
their future prospects for winning new contracts.
Top Project Management Challenges
Accurate project cost forecasting 17% 15% 16% 48%
Collaboration and communication 14% 13% 15% 43%
Inexperienced project managers 17% 13% 9% 39%
Poorly defined scope 15% 11% 8% 34%
Accurate project timeline forecasting 10% 13% 10% 33%
Insufficient project management procedures 9% 11% 10% 30%
Schedule viability/schedule maturity 6% 12% 12% 30%
Inexperienced project control professionals 10% 6% 5% 21%
Having the right software tools 6% 3% 7% 16%
Alignment with executive management 4% 6% 6% 15%
Data integrity 4% 4% 10%
First Second Third

Addressing Top Project Management Challenges
Fifty percent (50%) of respondents in this year’s Study It is important that government contractors address
indicated the need to “invest in project manager training,” these challenges. Working to retain experienced project
while 40% called out “hiring of more qualified staff.” In managers, while making the effort to develop high-
addition to investments in these areas, it will be critical potential hires. Companies need to invest in training
to “develop formal risk management programs,” (28%) and, when possible, offer mentoring programs to pass
and “develop and track formal KPIs (key performance along the skills and knowledge they need to succeed in
indicators) and project status” (45%). their roles.
The talent shortage noted in other sections of this

Study affects project delivery as well. Employees in key
functions, such as scheduling and estimating, may also be
new to their roles and lack the training and experience to
effectively execute their responsibilities.
Addressing Top Project Management Challenges
Develop internal PM best practices 66%
Invest in PM training 50%
Develop and track formal KPIs and

project status 45%
Hire more qualified staff 40%
Develop formal project risk management

programs 28%
Formal Project Management Professional

(PMP) certification 27%
Invest in better software tools 25%

Timing of Schedule Risk Analysis
Information regarding the timing of schedule risk analysis Schedule risk analysis should be performed continuously
in 2019 is largely consistent across business sizes. over the lifecycle of a project. Occasional or intermittent
Respondents indicated that schedule risk analysis occurs analysis may miss problems that could be identified and
throughout the lifecycle of the project. Not surprisingly, quickly addressed to avoid potential execution difficulties
the majority of activity occurs during the bidding/ before it is too late to course correct.
proposal and execution phases of projects and continues
through project closure. Sixteen percent (16%) of small
businesses are not performing schedule risk analysis at
all, failing to execute this important task completely.
When Organizations Perform Schedule Risk Analysis
77%
65% 67%
58% 58% 57%
52% 52% 52%
49% 50%
45%
33%
23% 23%
16%
12%
8%
Small Medium Large
Bidding/proposal Initiation phase Planning phase Execution phase Closure phase Not at all

Project Management KPIs
“Project profitability,” and “net project revenue,” continue satisfaction,” (79%) on performance is apparent, as it is
as top KPIs in the project management space, with also a top metric tracked by project management teams.
more than 90% of companies tracking them. Many also Not surprisingly, large companies are more likely tracking
track the average collection period for aged accounts earned value management (EVM) metrics (43%), while
receivable (81%) to ensure a high degree of visibility to overall EVM is more sparingly used (27%).
outstanding receivables. The importance of “customer
Project and Risk Management KPIs Tracked
Profitability 96%
Net revenue 91%

Average collection period (days sales
outstanding) for A/R Aged 81%
Client satisfaction 79%
Cost variance 71%
Average billing rate 67%
Estimate to complete 65%
Estimate at complete 64%
On-time delivery 63%
Multipliers 55%
Effective billing rate 54%
Schedule variance 52%
Earned value management 27%

Prime Versus Subcontracts
Despite the indication in 2019 from large businesses that to consolidation either in companies or contracts.
the mix in their positions as prime and subcontractor Mergers and acquisitions activity may be providing these
have shifted (80% prime versus 62% year-over-year), businesses greater access to prime contract vehicle
the overall split was largely flat. The observed shift positions than seen previously.
toward prime status in large businesses is likely due
Prime Versus Subcontracts
56%
71%
80%
44%
29%
20%
Small Medium Large
Prime Sub

CLARITY OUTLOOK
Project and Risk

Management
Developing project managers into project leaders requires established, consistent best
practices and specialized tools for proactive project and risk management. It appears
that businesses are moving in this direction but should accelerate efforts to ensure
project timelines are met, costs are controlled and customers are satisfied.
A strong project manager needs to be able to understand It appears that many companies are not appropriately
all aspects of project planning and delivery, including, but prioritizing the use of specialized tools to help project
not limited to, people management, business acumen and managers assess risk or manage schedules, which could
anticipating and overcoming project risk. Companies can result in cost and schedule overruns. Tools that help
support project managers by standardizing best practices support consistent best practices and metrics across
and metrics around cost, schedule and risk. projects and programs ensure better schedules, cost
management and project delivery.

SECTION FOUR
Human Capital
Management
Finding, recruiting and retaining qualified talent continues to challenge the government
contracting sector. Talent shortages and commercial competition for candidates have
complicated matters for human capital management leaders.
The struggle to offer competitive compensation packages that would secure the highly specialized employees needed
to staff projects continued to stand out as a top challenge. Lastly, while the labor market has favored candidates, both
passive and active, for the last several years, the talent market may shift in favor of the employer for some types of roles
in the short term.
The number one challenge for human resources, as identified in this survey, is “retaining top talent.” Companies are
attempting to address this by “offering more formal career development programs,” and “overhauling reward and
recognition approaches,” over the next 12 months. It will be important for companies to maintain critical staff levels in
key roles during this period of uncertainty in order to scale when the economy eventually begins to reset.
Key Takeways
Despite stated recruiting and retention The cost of replacing trained employees
73%
challenges, companies of all sizes and the lag time before new employees
grew headcount during 2019. Small can be assigned to billable work has
businesses showed the greatest growth a significant impact on cost and
struggle to find qualified
talent at 20%. With 70% of all companies utilization.
anticipating continued growth in sales
in 2020, an increase in hiring needs is Some turnover may be due to
expected to follow. employees following contracts as
work moves from one organization to
Government contractors are beginning another. In addition, contracts may
to recognize the effects that enhanced be shifting to prime status, causing
reward/recognition programs and shrinkage in the workforce attached
40% formal development plans can have on
their workforce.
to the contract. Other factors include
continued generational turnover as
concerned about effective older workers leave the workforce,
performance management High turnover rates are affecting all and highly-specialized employees are
companies, but 47% of large businesses being passively recruited by competing
are experiencing 16% or higher turnover. companies in both the commercial and
High turnover can have a negative government contracting sectors.
impact on all aspects of operations,
from cost containment to customer
satisfaction and project profitability.
43
Turnover, Retention and Time to Fill Positions
Full-time equivalent (FTE) turnover rates are a problem to 81% versus 84% year-over-year. All sizes of companies
for employers of all sizes. The composite turnover rate experienced declines. Some possible reasons are that
grew, with more companies reporting high turnover rates 79% of companies responding do not have a formal
(16% or higher). This is a considerable jump from the career development plan in place, and average annual
previous year and may be contributing to the increase in training dollars have decreased by 46% year-over-year.
overhead rates. Overall, the retention rate has decreased
FTE Composite Turnover Rate
Small 56% 15% 8% 21%
Medium 18% 21% 29% 32%
Large 16% 21% 16% 47%
Overall 37% 18% 16% 29%
0% 20% 40% 60% 80% 100%
0%–5% 6%–10% 11%–15% 16% or higher
The average time to fill positions remained relatively constant year-over-year. The number of open positions and the
time it takes for a new employee to become billable translates to unrecoverable expenditures. Long and ineffective
hiring processes producing low-quality hires are more costly than many companies realize.
Average Time to Fill Positions
Small 38% 52% 8%
Medium 25% 61% 14%
Large 11% 53% 21% 16%
Overall 28% 55% 13% 4%
0% 20% 40% 60% 80% 100%
0–30 days 31–60 days 61–90 days >90 days

Top Talent Acquisition Challenges
The top challenge cited in this year’s Study is “the Another key challenge is “the ability to offer competitive
availability of good candidates in the marketplace,” (73%). compensation and benefits to candidates,” noted by 47%
The second and third top challenges are “attracting of respondents. In a strong talent market, candidates
better qualified talent,” (53%) and “matching qualified have less reason to accept below-market compensation
candidates to open positions,” (51% versus 41% year- when compared to similar roles in the commercial
over-year). The difficulty of matching candidates is often market. It is also important for government contractors
due to the need for an exact qualifications match under to regularly review compensation packages to ensure
a contract. In order to better find and attract qualified they are attractive to the younger qualified workers
talent, companies may have to cast a wider net and be that typically prefer more modern and updated work
more flexible in terms of location and remote working arrangements and benefits.
arrangements wherever possible. An experienced
workforce is critical for staffing projects in an industry with
strict compliance and regulatory rules.
Top Talent Acquisition Challenges

The availability of good candidates in the
marketplace 41% 23% 8% 73%
Attracting better qualified talent 17% 17% 18% 53%
Matching qualified candidates to open

positions 21% 15% 14% 51%
The ability to offer competitive

compensation and benefits to candidates 8% 18% 21% 47%
Becoming better at passive recruitment 5% 15% 18% 38%
Aligning acquisition goals with the

strategic goals of your company 6% 5% 8% 19%
Executive talent search and acquisition 4% 8%
First Second Third

Addressing Top Talent Acquisition Challenges
Companies are increasingly relying on “outsourcing for attractive. Small and medium-sized companies have an
recruitment,” (36%), which is an expensive solution to a opportunity to move more quickly in this area because
potentially broader problem. Thirty-five percent (35%) their hiring practices tend to be more streamlined,
of respondents are “increasing incentives for employee however, we are not yet seeing a marked shift in this area.
referrals,” while 30% are “rebranding to attract better
qualified talent.” Large businesses in particular have In general, companies should evaluate increasing their
been working to rebrand by reinventing themselves with investments in human capital management, including
a focus on innovation in an attempt to mirror technology training and tools, to drive continuous performance
companies who are perceived by young workers as more improvement.
Addressing Top Talent Acquisition Challenges
Outsourcing recruitment more 36%
Increasing the incentive for employee

referrals 35%
Rebranding ourselves to reach better

qualified talent 30%
Hiring more recruiters 29%
Switching to a new talent acquisition

software solution 24%
Hiring new leadership 16%
Other 11%
Last Time HR Solutions Were Significantly Added to or Replaced
Small 27% 30% 14% 30%
Medium 11% 32% 25% 32%
Large 32% 26% 26% 16%
Overall 23% 30% 20% 27%
0% 20% 40% 60% 80% 100%
Within the last year 1–3 years ago 3-5 years ago More than 5 years ago

Top Human Resources Management Challenges
The most cited challenges for human resources (39%). The next five concerns are geared toward
(HR) management were “retaining top talent,” (59%), retention and workforce excellence, such as “succession
“implementing effective performance management,” and career development planning,” (39%) and “measuring
(40%), and “strategic workforce capacity and planning,” employee engagement,” (33%).
Top HR Management Challenges
Retaining top talent 32% 16% 10% 59%

Implementing effective performance
management 11% 16% 12% 40%
Strategic workforce capacity and planning 22% 7% 10% 39%
Succession and career development planning 8% 16% 14% 39%
Measuring employee engagement 5% 15% 12% 33%
Reward and recognition programs 3% 10% 10% 24%
Creating a culture of learning with new programs 9% 4% 7% 21%
Staying compliant with new rules and regulations 8% 5% 3% 16%
Managing subcontractors 5% 8%
Getting people to enroll in health and wellness
programs 5% 5%
Implementing a merger or acquisition 4% 4%
First Second Third

Addressing Top Human Resources Management Challenges
With retention of top talent as the top reported HR their investments in human capital management to stem
management challenge, companies are addressing it by the tide of turnover, and lean into a greater focus on
aiming to create and implement programs to improve employee satisfaction and rewards/recognition.
employee engagement and involvement. With highly
skilled talent in high demand, companies need to raise
Addressing Top HR Management Challenges
Outsourcing recruitment more 36%
Increasing the incentive for employee

referrals 35%
Rebranding ourselves to reach better

qualified talent 30%
Hiring more recruiters 29%
Switching to a new talent acquisition

software solution 24%
Hiring new leadership 16%
Other 11%

Tracking Human Capital Management Metrics
Companies continue to track human capital management HR professionals assess the success of talent strategies.
metrics like, “time to fill positions,” “voluntary turnover,” For example, understanding the “offer acceptance rate,”
and “employee retention.” While these top three KPIs and “lead time to billable,” metrics would help companies
are important, there are many other metrics around assess hiring and onboarding practices.
engagement, retention and acquisition that would help
Human Capital Management KPIs Tracked
Time to fill positions 56%
Voluntary turnover 56%
Employee retention 55%
Involuntary turnover 44%
Revenue per FTE 31%
Percentage of accepted offers 23%
Lead time from hire to billable 19%
Resume-to-hire ratio by position 8%
Other 5%

Changing Human Resources Compliance Issues
Companies of all sizes reported in 2019 that staying on require HR teams to increase documentation about staff
top of HR compliance is challenging or very challenging. and qualifications. Producing reports and documentation
Respondents are also concerned with “keeping up with to satisfy audit requests continues to challenge many
ever-changing regulations,” (42%) and “understanding organizations. Adequate tracking and reporting continue
new regulations and their impacts,” (40%). Existing and to be a hindrance for HR professionals using outdated or
new regulations rolled out to government contractors generic solutions.
Staying on Top of Changing HR Compliance Issues
Small 4% 31% 47% 18%
Medium 36% 54% 11%
Large 16% 68% 16%
Overall 29% 53% 16%
0% 20% 40% 60% 80% 100%
Not challenging at all Not challenging Challenging Very challenging
Greatest Concern about HR Compliance
Keeping up with ever-changing

regulations 42%
Understanding new regulations and

their impacts 40%
Incorporating emerging technology into

existing processes 11%
Ensuring appropriate preparation and

trial for adults 7%

CLARITY OUTLOOK
Human Capital
Management
The struggle to find, attract and retain the best and brightest will require companies to
rethink and revamp employer branding, compensation packages and training and
development opportunities.
Understanding what drives younger workers and favor of the employer, but highly specialized talent will
adapting to the changing workforce demands will be likely remain difficult to secure. However, the stability
essential. The market has been a candidate’s market for of the government contracting sector during this time
several years as companies focused on growth. Current of uncertainty may become more attractive to passive
economic activity may well shift that balance in greater candidates in competing industries.

SECTION FIVE
Contract Management and

Procurement
Contract management and procurement are essential components in delivering value
to the government. At present, few have deployed available tools, resources and
people needed to deliver against potential value.
The level of complexity is significant and the cost of getting it wrong is high, yet headcount and tools are not highly
prioritized. The average number of full-time equivalent employees in both contract management and procurement is
limited, even in larger companies. In many companies, teams do double duty managing both functions. The results show
that companies are not adequately set up to manage documentation and information across programs.
Key Takeways
Small and medium-sized businesses of all sizes, staff may be stretched to
26% may not be fully optimizing contract
management and procurement
fulfill required tasks rather than think
strategically. The many tools available
use contracts management functions. Less than half (43%) of to manage costs and efficiencies offer a
software
businesses use “content management pathway to more strategic contributions
software,” and only 26% use “contracts from these disciplines. Procurement
management software.” Outdated should place greater emphasis on
software and tools may limit the ability finding solutions to business problems
to analyze operations, integrate with to gain competitive advantage over
other corporate functions, and reduce companies that fail to do so.
63%
hands-on processes. In companies
reported a desire to make

procurement more strategic

Contract Management Resources
Shared drives and spreadsheet solutions like Microsoft A large percentage of small businesses (39%) are
Excel are the most widely used tools for managing heavily reliant on paper files. Even large businesses
contracts. Lack of resources and bandwidth are key (21%) combine paper files with other methods, primarily
reasons that companies often fail to track vendor spreadsheets and shared drives. Digitization and
performance and other KPIs that would drive continuous upgrading software capabilities and systems are crucial
improvement. Companies should consider potential new in an era where business continuity can be threatened by
solutions that solve problems across the business. unforeseen events.
Shared drive 58%
Microsoft Excel 57%
Content management software

(e.g., Microsoft SharePoint) 43%
Paper files 30%
Contracts management software 26%
Other 7%
Small Medium Large
Shared drive 59% 65% 49%
Microsoft Excel 59% 60% 49%
Content management software

(e.g., Microsoft SharePoint) 34% 48% 53%
Paper files 39% 23% 21%
Contracts management software 16% 23% 47%
Other 8% 8% 5%

Top Contract Management Challenges
“Maintaining data integrity between opportunity, contract information into systems,” was ranked third (37%). Nearly
and project records,” was the top reported challenge all of the reported challenges by respondents are related
(47%). “Tracking non-financial aspects of contracts,” to data systems and capabilities.
was ranked second (45%), and “time required entering
Top Contract Management Challenges

Maintaining data integrity between opportunity,
contract and project records 16% 16% 15% 47%
Tracking non-financial aspects of contracts 17% 16% 13% 45%
Time spent entering contract information into

finance or business development systems 13% 14% 10% 37%
Tracking changes 8% 11% 16% 36%
Not centralized in a single system 20% 6% 6% 32%
Flowing down FAR and DFARS clauses and other

supplements 5% 9% 10% 24%
Fully closing contracts out 6% 5% 11% 22%
Providing accurate information to contract

officers 8% 8% 4% 20%
Tracking pre-award costs 5% 8% 3% 16%
Managing conflicts of interest 5% 3% 9%
First Second Third

Addressing Top Contract Management Challenges
Respondents indicated a strong preference (45% to consider. In addition, 21% cite “hiring a contract
versus 23%) for “changing business processes,” over manager,” as a priority, as companies try to adapt to and
“integrating current contract management software with address new challenges. This shows an increasing need
finance systems.” However, 19% of respondents cited for companies to look for efficiencies in their processes
both “investing in contract management software,” and and secondly, assess tools designed to meet the unique
“customizing their current or CRM software,” as options complexity needs within this sector.
Addressing Top Contract Management Challenges
Changing business process 45%
Integrating current contract management

software with finance systems 23%
Hiring a contract manager 21%
Investing in contract management software 19%
Customizing current capture or CRM software 19%
Increasing the number of internal audits 13%

Top Procurement Challenges
The need for a “more strategic procurement function,” Approximately half (48%) of companies have combined
is recognized by 63% of respondents, followed by contract management and procurement departments.
“shortening procurement cycles,” at 54%. The third Separation of these functions could allow greater
priority is “talent shortage,” (52%), reflecting issues seen concentration of resources and improve specialized
across all sections of this Study. A transition away from a focus on two very important functions.
task-oriented function to a more strategic role will allow
procurement staff to deliver the greatest value to their
customers at the best possible cost.
Top Challenges Procurement Will Face in Next 12 Months
Transitioning procurement to be
more strategic 33% 19% 10% 63%
Shortening cycle times 16% 19% 19% 54%
Talent shortage 22% 19% 11% 52%
Supplier stability 10% 10% 13% 34%
Supply chain security 11% 10% 12% 33%
Lean initiatives 7% 9% 9% 25%
First Second Third
Procurement Team Also Manages Contracts
48% Yes
52% No

Tracking Procurement Key Performance Indicators
The most widely tracked KPIs in procurement are A company’s ability to quickly match invoices to purchase
“direct versus indirect spend,” (59%) and “days payable orders has a corresponding impact on the billing cycle.
outstanding,” (48%). Other key indicators include Effective procurement functions use technology to
“procurement cycle time,” “cost per invoice,” and speed up matching and billing, and improve cash flow.
“dedicated procurement FTEs.” Alternatively, the rise in days sales outstanding may be
due in part to increased billing time and is a trend to watch
closely. Continued increases in these metrics may lead to
reduced cash flow.
Procurement KPIs Tracked
Direct versus indirect spend 59%
Days payable outstanding 48%
Procurement cycle time 26%
Dedicated Procurement FTEs 19%
Cost per invoice 13%
Procurement cycle time by process stage 12%
First time match rate 2%

CLARITY OUTLOOK
Contract Management anW

Procurement
Contract management needs to focus on process efficiencies and consider specialized
tools to help manage contracts and documentation. Procurement departments should
be working in lockstep with their finance teams to ensure accurate cost allocations and
timely billing.
The demands within small and medium-sized companies Companies should examine whether combined staffs
on contract management and procurement staff are are the best approach to support the creation of a
complex and growing. As these two disciplines are more strategic role. They also should consider greater
difficult to optimize with shared resources, however, investments in staffing and tools that can free people
many companies are constrained by this limitation. The to concentrate more on strategic initiatives. Training
requirements to track numerous metrics, control the should be provided to maximize the value of data and its
buying process with a diverse number of suppliers, and reach across the business. Companies that make these
keep processes moving on time are stretching capabilities. investments will benefit measurably.

SECTION SIX
Information
Technology (IT)
IT’s leading objective continued to be data security in 2019. A strong focus on
compliance combined with ever-increasing government regulations heightened IT
challenges. Extracting value from big data to improve operational effectiveness.
The success and growth of many government contractors is significantly influenced by a company’s ability to recruit,
train and retain high-quality skilled IT professionals. There is intense competition for skilled and cleared talent,
particularly among certain sectors of the industry.
Companies continue to prioritize investment in new IT infrastructure and are focused on tools that increase the
efficiency and effectiveness of the organization. Migration to the cloud continues to gain momentum, with half of
responding companies planning to increase their on-premises to cloud movement within the next 12 months. Business
continuity should be a key consideration with new infrastructure, particularly as current events have demonstrated the
crucial importance of remote working.
Key Takeways
The ability to mine big data is placed on government contractors to
64%
understood as a means to improve adhere to changing standards in security
operations and project execution. requirements. Small businesses need
Artificial intelligence and machine to pay close attention to compliance
cited IT and data security as
a top challenge learning are important areas of focus if they wish to avoid being left out of
to achieve this goal. The increased use bidding opportunities.
of data implies a potential opportunity
to connect all aspects of the project Businesses are prioritizing IT
lifecycle to allow leaders to make critical investments in “security and
business decisions. authentication,” as well as “finance and
accounting,” applications as part of their
57% Security regulations coming from the
government, like Cybersecurity Maturity
efforts to mitigate security breaches.
Overall, cybersecurity incidents
are concerned about Model Certification (CMMC), National remained level year-over-year, with
meeting regulatory
Institute of Standards & Technology technology viruses remaining the top
requirements
(NIST) mandates and International security challenge.
Traffic in Arms Regulation (ITAR)
requirements are making a new level of
IT maturity necessary. The onus will be
53%
plan to move on-premises
solutions to the cloud
59
Number and Nature of Cybersecurity Incidents
Overall, the percentage of businesses experiencing an security protocols and procedures. “Denial of service,” or
increase in cybersecurity incidents remained consistent ransomware attacks, have also decreased as companies
year-over-year. Large businesses saw the highest level of better prepare and back up their systems.
increase, which likely is because they are bigger and more
attractive targets for cyber threats. Thirty-six percent (36%) of companies cited “no security
challenges,” in the past year. Companies are urged to
Technology viruses are the leading problem among those review their security procedures and check for incursions
companies that have a security challenge (32%). There regularly. Malware and other problems are often present
has been a significant decrease in data breaches (15% for long periods before they are activated or discovered.
versus 20% year-over-year) most likely due to improved
Number of Cybersecurity Incidents
Small 6% 21% 68% 4%
Medium 6% 33% 42% 12% 6%
Large 14% 38% 45% 3%
Overall 8% 29% 55% 6%
0% 20% 40% 60% 80% 100%
Increased dramatically Increased slightly Stayed the same Decreased slightly Decreased dramatically
Security Challenges in Past Year
Virus 32%
Data breach 15%
Denial of service 12%
Physical breach 5%
None 36%
Other 16%

Top IT Challenges
Among the numerous IT challenges facing government from 37% to 57%. Following closely is “NIST compliance,” a
contractors, “IT and data security,” are cited most (64%) high priority at 27%. Changes are coming on top of existing
as the top concern. This level of attention is certainly requirements, most notably CMMC, that will increase the
warranted in view of the necessity to protect operations complexity and challenge of compliance with regard to
and data and to maintain a level of security acceptable to some contracts. Companies should evaluate whether
customers. their existing IT systems, software and staff are ready for
increased regulatory oversight.
“Satisfying government system security and regulatory
requirements,” is a strong second area of concern that
has jumped twenty percentage points over the past year
Top IT Challenges
IT and data security 22% 23% 19% 64%

Satisfying government system
security and regulatory requirements 18% 24% 16% 57%
NIST compliance 17% 6% 4% 27%
Migrating to cloud 8% 9% 10% 27%
Implementing new software systems 6% 7% 12% 24%
Finding top IT talent 8% 6% 7% 20%
Managing legacy systems 7% 6% 6% 18%
Operating with a smaller IT budget 6% 7% 5% 18%
Maintaining physical infrastructure 6% 5% 5% 16%
Implementing a merger or acquisition 6% 8%
Setting up new facilities 4% 7%
ITAR compliance 3% 6%
First Second Third

Addressing Top IT Challenges
Survey responses once again highlight the importance of Sixty-nine percent (69%) of the Study’s base cited
IT talent, which is crucial to achieving the improvements “create new security policies and procedures,”
sought by leaders. Thirty-two percent (32%) of compared with 59% last year, as their top priority. “Re-
respondents in this year’s Study view adding staff as a engineering business processes,” and “building out new IT
priority, compared with 23% the previous year. infrastructure,” were second and third in terms of priority.
None of these can be achieved without adequate IT
leadership.
Addressing Top IT Challenges

Create new security policies and
procedures 69%
Re-engineer business processes 34%
Build out new IT infrastructure 32%
Hire more IT staff 32%
Consolidate the number of vendors or

systems used 20%
Outsource IT administration and

infrastructure 19%
Offshore IT staff 3%
Other 3%

Investment in Business Applications Systems
While “security and authentication,” received the highest “Business intelligence,” spending (23%) and “customer
level of investment (43%) – followed by “accounting and relationship management,” (20%) are consistent
finance,” (35%) – it is “human capital management,” with the need for more sophisticated and robust
that jumped markedly year-over-year (18% to 27%) business development efforts detailed in the business
in resources devoted. This is a positive development development section of this Study.
reflecting the essential importance of dedicated staff to
all other IT objectives and many other business goals. Companies should evaluate whether other efficiencies
are achievable through additional investment in
specialized software and services.
Investment in Business Applications Systems
Security and authentication 43%
Accounting and finance 35%
Human capital management 27%
Business intelligence 23%
Customer relationship management 20%
Project and portfolio management 20%
Email and collaboration 20%
Voice and communications 11%
Procurement 10%
Manufacturing 5%

Technology Trends
“Big data,” and the techniques to analyze it – “data Other previously top trends, such as “wearable
science,” “artificial intelligence,” and “machine learning” technology,” and “block chain,” have decreased in focus,
– remain the most important technology trends as overshadowed by big data.
businesses look to leverage data to improve operations.
Technology Trends
Big data 24% 33% 16% 9% 18%
Data science 31% 19% 21% 10% 18%
Artificial intelligence 25% 22% 19% 16% 18%
Machine learning 27% 15% 28% 10% 20%
The Internet of Things 14% 20% 28% 17% 21%
Geo location 14% 16% 18% 21% 32%
Natural language processing 8% 15% 21% 20% 35%
Block chain 8% 13% 19% 21% 39%
Wearable technology 10% 20% 20% 46%
0% 20% 40% 60% 80% 100%
Very important Important Moderately important Slightly important Not important

Applying Technology Trends
The top applications for technology trends are focused project management and financial management. This
around operational efficiencies and project execution. demonstrates IT’s movement beyond transactional tasks,
This is consistent with trends observed elsewhere in the now setting technology strategy that benefits the entire
Study, particularly in opportunities for improvement in project lifecycle.
Applying Technology Trends
Operations 48%
Project execution 44%
Project Management 36%
Business Development and marketing 36%
Project information management 31%
Human Capital Management 23%
Procurement/supply chain management 20%
Financial management 20%
Business administration 18%
Resource management 17%
Building information management 13%
None of the above 11%

Business Applications in the Cloud
Businesses continued to migrate applications to the As the migration to the cloud continues, companies
cloud in 2019, with total volume edging up slightly. This will need to be careful with security and compliance
year, 73% of medium-sized companies indicated at least requirements. Business continuity and the use of the
a quarter of their business applications were migrated to cloud should be considered, particularly given recent
the cloud, up from 58% last year. experiences and the need for remote working.
Business Applications in the Cloud
Small 30% 11% 60% 59%
Medium 28% 28% 45% 50%
Large 50% 11% 39% 43%
Overall 35% 15% 50% 52%
0% 20% 40% 60% 80% 100%
0%–25% 26%–50% >50%
Plans to Move to Cloud in the Next Year

Consistent with 2018, about half (53%) of all businesses plan to move on-premises solutions to the cloud in the next
12 months, an increase from 48%. This will be of heightened importance in the current environment of virtual and
remote working.
47% Yes
53% No

CLARITY OUTLOOK
Information
Technology (IT)
A strong focus on compliance and meeting new regulations for security and IT maturity
will be foundational for future contracts. As the need for IT professionals to strategically
contribute to a business’ operational effectiveness.
One way in which businesses can gain an IT competitive As the nature of how we conduct business changes,
advantage is to be first adopters of big data analysis and adopting modern tools and best practices will become
applications. Using big data to improve processes and the standard. Business continuity, IT capabilities and
outcomes before the competition will move companies remote working should receive renewed attention after
ahead of others who wait to do so. the experience of the recent pandemic.
Businesses should continue to evolve their security

protocols to prevent cybersecurity attacks and incursions
while maintaining their progressive move to the cloud.
This will be important to daily business operations, in
addition to meeting increasing compliance requirements
imposed by the federal government.

SECTION SEVEN
Manufacturing
Quality control continues to challenge manufacturers; a result of strict quality
guidelines and oversight. This is compounded by compliance needs being met with
manual, and even paper-based, tracking – problematic, and potentially costly, with
things like defective or counterfeit parts.
Key Takeways
48%
Moving away from outdated legacy Manufacturing revenue growth dipped in
systems and toward tools designed 2019, and the outlook for 2020 is more
to meet rigid government compliance conservative year-over-year. More than
note compliance
requirements is a meaningful step sixty percent (66%) of manufacturers
requirements pose
significant risk toward better quality control. This will are planning for growth rates of 5% or
be increasingly important as the use less, compared to 50% in 2019.
of subcontractors, and the need to
manage them, increases.
Many manufacturers are shifting their

desire for digital transformation into
35% action. While systems and processes

are vital, the talent shortage is a key
identified security as a key area of vulnerability. Re-engineering
need processes can be costly and cause
companies to miss shipping deadlines
if they do not have the coveted highly
skilled engineers and machinists.

Top Manufacturing Challenges
The top priorities cited were “quality control,” and “compliance,” which were reported as expected. “Managing
subcontractors,” is a pain point (29%), as is the need to deal with “change order and revisions,” (21%). Managers are
looking for “better visibility into the supply chain,” (13%) and “better traceability,” (13%). Safety is always a concern.
Top Manufacturing Challenges
Quality control 11% 18% 13% 42%

Staying compliant with government
regulations 8% 11% 16% 34%
Increasing services 16% 13% 29%
Calculating true manufacturing costs 16% 8% 5% 29%
Subcontractors 16% 8% 5% 29%
Talent management 5% 8% 13% 26%

Managing engineering change orders
and revisions 11% 5% 5% 21%
Updating work instruction manuals 5% 11% 16%
Better visibility into the supply chain 8% 13%
Better traceability 8% 13%
Numerous contract types 8% 13%

Maintaining a safe work environment
and shop floor 5% 3% 11%
Timekeeping 5% 3% 11%
Lower inventory turns 5% 11%
First Second Third

Addressing Top Manufacturing Challenges
In order to address the top challenges of control and safety programs,” is a priority for 26% of respondents.
compliance, manufacturers are using a variety of tactics. Twenty-six percent (26%) are also looking to “integrate
These include an “increased use of subcontractors,” manufacturing with finance,” facilitating greater visibility
(26%) and “investment in new manufacturing software and understanding of costs, thus ultimately implementing
solutions,” (24%). “Creating and promoting new, required changes to improve control and efficiency.
Addressing Top Manufacturing Challenges
Using subcontractors more 26%
Integrating our manufacturing solutions

with finance 26%
Creating and promoting new, required

safety programs 26%
Investing in new manufacturing software

solutions 24%
Investing in manufacturing execution

systems 21%
Hiring third parties to audit our

operations for compliance 13%
Providing suppliers access to our

inventory and purchasing systems 8%
Other 21%

Current Key Performance Indicators Tracked
The top metric tracked is “shipments delivered on time,” (75%). On-time deliveries reported in 2019 ranged widely, from
a low of 76% among medium-sized businesses, to a high of 96% among small businesses.
A majority are tracking the “percent of scrap or waste.” The scrape rate held steady at 2% to 4%. The “cost of engineering
changes,” and tracing “counterfeit or defective parts,” is of high interest to approximately a third of respondents.
Manufacturing KPIs Tracked
Shipments delivered on time 75%
Cost at completion 68%
Percent scrap 54%
Cycle time 36%
Cost of engineering changes 32%
Counterfeit or defective part trace 32%
Units per hour by FTE 25%
Quality metrics by laborer 25%
Number of engineering changes 21%
Quality metrics by machine 18%

Time spent preparing for and
participating in shop floor audits 18%

Areas of Risk
The talent shortage is a clear number one in the rankings “Compliance requirements,” are a strong concern (48%),
of priority (63%). As noted above, an inability to recruit as is the “supply chain,” (35%). “Security,” is a key need
and retain quality staff limits all other activities. As shown (35%) in manufacturing just as it is across the rest of the
in other areas in this Study, talent is clearly an area of business.
focus for the majority of businesses.
Top Areas That Pose Greatest Potential for Risk
Talent (shortage) 38% 10% 15% 63%
Compliance requirements 15% 20% 13% 48%
Supply chain 20% 13% 3% 35%
Quality 10% 13% 13% 35%
Security 8% 13% 15% 35%
Innovation 3% 15% 15% 33%
Subcontractors 5% 13% 10% 28%
System upkeep/age 3% 5% 10% 18%
Trade negotiations 5% 5%
First Second Third

CLARITY OUTLOOK
Manufacturing
Manufacturers are strongly focused on achieving on-time deliveries and realizing
financial results. Process improvements and greater utilization of subcontractors are
the primary ways respondents intend to address the quality and compliance challenges.
Some companies will attempt to re-engineer their The ability to integrate data from manufacturing
processes, some will look to tools and technology, while operations with other functions, such as finance, will
those that hope to be successful in the long term will facilitate cost management and accurate financial
focus on both approaches. Regardless of approach, the forecasting, which should in turn help manufacturers
staff to execute the changes is essential. improve profitability.

Summary
A year of strong financial performance in 2019 engendered positive forecasts for high
growth and profitability in 2020. With the COVID-19 pandemic now upon us, it is difficult
to forecast what 2020 will bring. What is clear is that government contractors will need
to pay close attention to fundamentals, protecting growth, margins and cash flow now
more than ever. While defense businesses may have less exposure to economic
buffeting, they are not immune.
Business continuity is vital. The ability for employees Companies that weather this storm successfully will
to work remotely and access systems while complying leverage information and metrics to understand the
with security and clearance requirements will permit current status of their businesses and plan for navigating
the business to carry on. Having the right information a time of turmoil. Pre-COVID-19 strategic plans and
systems and software in place will support that effort. budgets for 2020 may no longer apply, but the disciplines
Capturing the efficiencies and knowledge from across of creating new ones are essential. This is a time when
an organization will contribute to cost control, greater successful companies will differentiate themselves from
profitability and fewer interruptions in the business. those that will not prosper.

Statistics at a Glance
SMALL MEDIUM LARGE
BUSINESS DEVELOPMENT
Percent Prime Contracts (Average) 56% 71% 80%
Percent Subcontracts (Average) 44% 29% 20%
Win Rate (Median) 30% 30% 43%
PROJECT AND RISK MANAGMENT
Change Order Win Rate (Median) 73% 80% 80%
EAC/ETC Forecasts (Median) 90% 90% 90%
Projects On or Under Budget (Median) 95% 85% 86%
Projects On or Ahead of Schedule (Median) 98% 85% 78%
Bid/Proposal: 52% 65% 50%
Initiation Phase: 49% 58% 57%
Schedule Risk Analysis

Planning Phase: 52% 58% 52%
(% of Organizations by Phase)
Execution Phase: 45% 77% 67%
Closure Phase: 23% 23% 33%
Not at All: 16% 8% 12%
FINANCIAL METRICS
Net Profit Margin (Median) 10% 8% 6%
Growth Rate (Median) 11% 8% 8%
Invoice Cycle (Median Days) 10 8 14
Days Sales Outstanding (Median Days) 40 37 45
Percentage of Organizations Experiencing At Least One Audit 63% 90% 96%
CONTRACT MANAGEMENT AND PROCUREMENT
Percent Using Contract Management Software 16% 23% 47%
First Time Rate (Median) 38% Null 99%
Days Payable Outstanding (Median Days) 37 37 32
HUMAN CAPITAL MANAGEMENT
Training Spend Per FTE (Median Dollars) $200 $120 $363
Composite Turnover Rate (% Over 10%) 29% 60% 63%
Time to Fill Position (% 60+ Days) 10% 14% 36%
INFORMATION TECHNOLOGY
Percent of Apps in the Cloud 75% 50% 28%
MANUFACTURING
Shipments Delivered on Time (Median) 97% 95% 95%
Scrap Rate (Median) 1% 1% 2%

For more than 35 years, Deltek has offered unique solutions tailored for the needs of the
government contracting industry. Deltek customers include 98 of the Top 100 Government
Contractors, and our clients use our solutions to:
• Track thousands of federal, state and local contracting opportunities
• Leverage actionable intelligence on market trends
• Improve contract win and retention rates
• Complete projects on time and under budget
• Ensure project, information technology and corporate governance
• Streamline the financial management of their organizations.
Deltek for
Government
Contractors
Learn more about the Deltek Clarity Government Contracting
Industry Study at deltek.com/clarity-govcon

Better software means better projects. Deltek is the leading global provider of
enterprise software and information solutions for project-based businesses.
More than 30,000 organizations and millions of users in over 80 countries
around the world rely on Deltek for superior levels of project intelligence,
management and collaboration. Our industry-focused expertise powers
project success by helping firms achieve performance that maximizes
productivity and revenue.
© Deltek, Inc. All rights reserved.

All referenced trademarks are the property of their respective owners. deltek.com [email protected] 800.456.2009

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What are some of the challenges identified in the study?

What are some of the challenges identified in the study?

How have government contractors responded to the COVID-19 pandemic?

How have government contractors responded to the COVID-19 pandemic?

Government

Areas of interest include business development,

There is an ongoing struggle for talent.

Compliance with ever-increasing regulation is a burden that

5 Deltek | Clarity Government Contracting Industry Study

Information technology and data security are a key focus,

Diversification is a go-forward objective that encompasses

Deltek | Clarity Government Contracting Industry Study 6

Government Contractor Confidence Index

7 Deltek | Clarity Government Contracting Industry Study

59% competition,” and “customer using

Deltek | Clarity Government Contracting Industry Study 8

Areas of Government Business

Federal Both Federal State, Local, K-12,

Revenue from Government Business

Revenue from Government Business

9 Deltek | Clarity Government Contracting Industry Study

Win Rate Change

Small 12% 30% 35% 14% 9%

Medium 7% 28% 26% 28% 10%

Large 13% 38% 38% 10%

Overall 11% 32% 33% 17% 7%

0% 20% 40% 60% 80% 100%

Deltek | Clarity Government Contracting Industry Study 10

Past Year’s and Next Year’s Government Market Sales

Lower 24% Lower

Average Revenue Generated from Top Three Customers

Average Revenue Generated from Top Three Customers

48% 47% 46%

Small Medium Large

11 Deltek | Clarity Government Contracting Industry Study

With increasing adoption of task order vehicles, fast

Top Business Development Challenges

Limited business development resources 22% 19% 18% 59%

Increased competition 19% 14% 13% 46%

Customer using contract vehicles we are not

Not enough time to assemble high-quality

More restrictive spending environment 6% 10% 11% 27%

Not able to find appropriate partners 6% 9% 7% 22%

Need for improved sales support 7% 8% 5% 21%

Inability to effectively share company knowledge 5% 4% 7% 16%

Time-consuming forecasts and reporting 5% 3% 6% 14%

First Second Third

Deltek | Clarity Government Contracting Industry Study 12

Addressing Top Business Development Challenges

More or better opportunity identification 37% 41% 78%

Expanding into other government agencies

More or better teaming and partnering

Increasing staffing to support sales and

rem ipsum Improved use of existing company knowledge

More or better GWAC, IDIQ, and/or multi-award

New tools or systems to improve efficiency* 19% 30% 49%

Improved analytics and/or understanding of

Acquisition of partners, competitors, and/or

Exploration of new markets outside of