Interview transcript:
Terry Gerton All right, let’s jump right in. The 2025 GAUGE Report came out recently, and it highlights a lot of changes in the government contracting environment. How would you characterize the current business environment for federal government contractors?
Kim Koster Even though we’ve had a lot of change and a lot of different things thrown at government contractors, we see that optimism absolutely remains very high. Resilience — this particular marketplace is very resilient. So 65% of the firms remain optimistic, even as we’ve seen the reforms, the budget uncertainty in the reshape of procurement. And really that’s changing all of their strategies, all the government contractor strategies, and having to relook at all the pieces of their business to be effective.
Terry Gerton There are so many changes happening. I want to kind of take them one by one in the report. One of the things that you report is that resource management has been the top challenge for government contractors four years in a row. Why do you think that issue is so persistent?
Kim Koster I think it’s because resource planning is hard. Resource management is just hard. It takes a lot of time, diligence and coordination. And one reason that we picked the topic that we picked this year, which was resource management and project execution, was because we couldn’t figure out why people were saying they were so mature with resource planning, yet they were showing it is the biggest challenge. So what we have decided is, one, it is hard, and it does take multiple sets of tools. So we kept seeing, Terry, Excel or spreadsheets being the number one tool. Now we just understand that there’s a ecosystem of tools. So even though people are doing it well, it’s difficult. And it’s constantly evolving and constantly changing as they get new contracts and as they lose contracts, get new contracts, things change.
Terry Gerton Well, the Trump administration has thrown a lot of uncertainty into financial planning right now in the early part of 2025 anyway. And is this also related in part to the uncertainties around the federal budget appropriations process?
Kim Koster I think so. And what we’re really seeing through all of this occurrence with the changes with the budget and not really understanding where things are going is, we saw that 80% of the firms reported difficulty winning contracts. That’s huge. And 50% of the firms are listing finding new revenue sources as their top challenge. So, you know, people are concerned with getting new contracts — where are they going to get them? Do they need to pivot to a different agency? Do they have to pivot to commercial? So very uncertain times.
Terry Gerton Is there a difference in this space between the big contractors and small- and medium-sized firms?
Kim Koster Absolutely. So the larger contractors, obviously, are not having the same experience that the smaller companies are having. They’re definitely struggling with getting the new contracts. They may only have had two or three contracts from one agency and may have seen some downturn on those contracts. So they’re definitely having to pivot and look at ways to be more efficient and get those proposals out quicker. And maybe to, like I said — a different product line, a different agency — you know, really trying to move that forward and keep all their staff and keep their business running. We’ve got several that can’t keep the doors open.
Terry Gerton You mentioned that your focus this year was on resource management and project management offices, and the report shows that firms that have fairly mature PMOs and resource management teams are significantly more optimistic about growth. What is it that these firms are doing differently that other firms could learn from?
Kim Koster So really, that project management office is seen from a contractor perspective as a growth engine. And I think it’s just as equally as important for agencies. It’s an assurance tool that their projects are being executed properly. Having that PMO really allows a very gated way to manage your projects. It allows you to tailor your projects based on the different types. You may have a fixed price contract that you don’t want to put as much rigor against, and you may have a cost-plus contract, obviously, that you’re having to put a tremendous amount of effort towards that. One thing we did see was a shift to centralized PMOs. And for me, that was just great news. I’ve been doing this for a really long time, Terry, and it was so exciting to see that. And we’ve also seen the PMOs increase year over year. The SMBs, the smaller businesses, are definitely not putting in the PMOs, but I do see a trend, a positive trend there, and I think that even preparing to have a PMO as they’re growing would be absolutely huge. You know, we have just some really simple stats; around 81% of GovCons with PMOs anticipate growth, versus 65% not having that same growth, and that correlates next year to the same amount, which is a 13% higher chance of growth.
Terry Gerton I’m speaking with Kim Koster. She’s the Vice President of GovCon Strategy at Uninet. One of the other things that’s interesting in this report, it says firms who want to stay in the federal space need to be prepared to do three things: innovate, optimize their operations and diversify. Tell me a little bit about what those three things really are, and what it takes in terms of investment and training to do what you think needs to be done.
Kim Koster Well, first off, I think that we all need to start looking very seriously at AI to help enable our companies. You know, I think AI has really moved from hot to what I would say [is] a mission enabler. And, you know, getting that, innovating with that, figuring out how to use it, and incorporate that into your footprint of your technology tools is going to be a game changer. So, in the report, we did put in an AM maturity model. Which people can go off and look at. Actually, that’s going to be in the supplemental, Terry, that is just coming out. So that maturity model is there. And in that supplemental, we compare the use of AI year over year, so from 2024 into 2025. And you can see a very large change in how many people are adopting it, and how many are adopting it with the proper policies and procedures around it. So for me, that’s innovating. For the diversification, it’s kind of like we talked about a minute ago, you know, making sure that you’re looking at all the possibilities. Taking your product and being able to see, does Agency A need it, or Agency B, or C, or all of the above? And maybe we started to also see a little bit of change to some commercial business. So, you know, again, these companies really working to stay alive.
Terry Gerton Well, keeping those three topics in mind, what are the implications for the GovCon workforce? Did they need to be investing in their own personal skills and if so what, to stay competitive?
Kim Koster Absolutely. I mean Uninet is definitely what I would call an AI-first company. And so we are using it to just enhance our abilities and to be able to scale. A lot of people think that using AI is going to replace the person. That’s not at all what’s happening. It just really does give you some superpowers within your organization to do things faster, target the right opportunities. Make sure that you’re not going after something that you don’t have a chance to win. And then preparing those proposals very quickly with information you had from, you know, past performance. So those are some really interesting things that I think will really help GovCons overall. The other thing too, is I think people — you still have to stay in the loop. You know, I use AI to produce some of the things we were going to talk about today, and I had to go back and change some of those percentages. They were not correct. So, you know you have to keep the person in the loop.
Terry Gerton The report also has a couple of really interesting pullout sections, and I want to talk about both of them. The first looks explicitly at the impact of the flurry of executive orders and the impact of the Department of Government Efficiency in the early phases of the Trump administration. How are those policy shifts affecting contractors’ ability to plan and execute?
Kim Koster Well, I think honestly, it’s just the unknown. You know, we have been in a time all these last 10 years of very predictable. You know you knew we were going to have the funding, the funding was continuing to increase. And then all of a sudden we saw a big change, a change in not necessarily being able to get a hold of your CO, not necessarily knowing if you had a project or not, or it’s canceled. You know, all those uncertainties were very disturbing to the entire marketplace. A lot of people said, you know, they’ve never been more scared, but they’re definitely going to hang in there. So I think everybody had different responses. The larger companies, Terry, I don’t think had the same response. They had enough business to not worry so much, but smaller businesses were terribly impacted by DOGE and all of the cuts within the federal agencies.
Terry Gerton Well, I think that leads to the second pullout, which is a survival guide for government contractors. So when you think about that in this current era of tremendous uncertainty, what are the top one or two pieces of guidance from that survivor’s guide that contractors should take away?
Kim Koster Well, I think staying informed. That is honestly the first thing. Figure out what’s going on, what EOs are out there, what policy changes are happening. And we’re seeing huge policy changes on the brink of occurring with the FAR and with procurement. So that’s one of the biggest ones to me. And then really look at all of your operational priorities. Make sure that you are compliant. Do some self-audits of your business. Adjust your financial plans. Don’t just think that what you had before is what you’re going to have today. Go back off and make sure that those plans are being appropriately updated for what’s actually going to happen. And I would just tighten up all of my processes. I would look at overall, my people, processes and tools, and I would take this time to really tighten that up. And then I would also look at increasing my business development abilities or capabilities. You know, we saw year over year that BD resources were very short. That wasn’t necessarily the case. It kind of moved off a little bit this year, moved down. So investing in tools, people, processes, to be able to win that new business. And so being able to concentrate on that growth. And then doing that growth very responsibly and gated, I think is really important.
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