With government spending on the rise across many federal agencies, there are new opportunities for contractors who supply goods and services. Government contracting still presents some unique challenges, however. Below we outline five trends that are shaping the government contracting industry.

Rising Defense Spending
Since 2015, federal defense spending has increased by $130 billion, reaching a total budget of $716 billion in 2019. Higher spending is projected to continue: the Congressional Budget Office recently estimated the United States would spend more than $7 trillion on defense over the next decade.1  

With military spending on the rise, many types of businesses will see accelerated growth, from those who build ships, drones and advanced weapons to those who supply food and services to the growing defense-related workforce. 

IT Overhaul & Cybersecurity
With outdated IT infrastructures and high-profile cybersecurity issues making headlines, Congress initiated legislation calling for a comprehensive update of government IT systems in 2016.2 Signed into law in 2017, the Modernizing Government Technology Act now makes technological innovation a requirement for federal agencies looking to improve their cybersecurity systems and leverage digital, mobile and cloud technologies to operate more efficiently and better serve constituents. These changes open doors for IT contractors who provide software, data analytics, cloud computing and more.In fact, the value of contracts involving IT products and services was $74.8 billion in fiscal year 2019.4   

Shortage of Skilled Labor

Even as contract opportunities increase, contractors who win engagements are finding it challenging to fill the positions needed to complete the work. This issue is due in part to a shortage of skilled workers in some industries. At the same time, contractors have also faced obstacles with obtaining security clearances required for their employees to begin work. While the government has recently made strides in reducing the backlog of security clearances, the number of pending cases still sits over 250,000, creating a significant bottleneck.5   

Shifting Competitive Landscape

Amidst greater spending, the rules for securing government contracts are also changing. In order to improve procurement processes, the government is requiring competitive bidding for large dollar-value, multiple-award contracts of $100 million or more.6   These contracts are no longer awarded to a single firm, and small businesses are being granted more opportunities to compete for subsets of those larger contracts. Navigating this increasingly competitive landscape will bring greater challenges as more firms vie for a piece of the pie.

Growing Audit & Compliance Requirements

U.S. military involvement in the Middle East in the early 2000s prompted a rush of defense spending and a need for government contracts to be executed swiftly – creating an environment where inefficient and even fraudulent actions could go unnoticed. When that effort started to scale back near the end of the decade, the government began to pay closer attention to its contracts.

This resulted in strengthened compliance requirements designed to curb costs, mitigate fraud and hold contractors and their business practices to a greater degree of scrutiny. To keep up with the more stringent requirements now in place, contractors need to proactively improve their internal controls, processes and procedures. This could entail enhancing codes of ethics and strengthening monitoring activities to improving employee trainings, refining sourcing standards and disclosing cost and pricing data.8    

Staying Competitive in a Land of Opportunity
Looking ahead, contractors have many opportunities to look forward to, especially in the areas of defense and IT. To thoroughly seize these new prospects, however, firms will want to train their workforces to fill skilled labor needs, prepare to make competitive bids and comply with new compliance standards. Staying nimble in a changing landscape will help ensure a prosperous future.

1 US SEC, Speech by Scott Bauguess, June 21, 2017, “The Role of Big Data, Machine Learning, and AI in Assessing Risks: A Regulatory Perspective”
2 Techopedia.com, “AI in the Army: How Virtual Assistants Will Impact US Military,” Justin Stoltzfus, Sept 13, 2019
3 Information Week, “Meet SGT STAR, the US Army’s Software Recruiting Agent,” Thomas Claburn, Jan 3, 2007
4 WITI30, Marian Cook, “AI in Government,” May 23, 2017
5 Washington Post, Aaron Gregg, “Pentagon advisory board releases principles for ethical use of AI in warfare,” Nov 1, 2019
6 US DOC, May 22, 2019, Fiona Alexander, "US Joins with OECD in Adopting Global AI Principles”
7 NextGov, July 2019, “Government’s AI Reality”, Jack Corrigan

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This article was published in the Winter 2020 edition of PSC's Service Contractor Magazine.