Interview transcript:
Terry Gerton All right, so we’re talking about the 16th iteration of Deltek’s Clarity survey. But before we dump into the 2025 version, I’d like to know kind of what have you seen over 16 years? Have there been trends that have been in evidence?
Kevin Plexico I would say one of the most notable trends for the industry is just the remarkable optimism and a sort of general belief that the stability of the government contracting space is pretty steady. You know, we have our ups and downs in the government contracting space, but when you compare that to other industries, like the hospitality industry and travel and construction, the government contracting sector has been remarkably stable. So I would say throughout all of our studies, one of the themes that we see is optimism about the year ahead, expectations of improving growth, etc. So that’s probably the most noteworthy finding, I’d say, that’s just persistent from year after year.
Terry Gerton You don’t think they’re just telling you what you want to hear.
Kevin Plexico Or maybe what their investors are expecting of them has been probably another way? It’s pretty rare that you see a company that’s expecting to contract or shrink in a coming period of time, but we have had those periods in our economy where that might be the case for some industries, but I think this one’s been pretty stable and steady.
Terry Gerton Well, you just released the 2025 report. So when was the response period for the data that you collected for this round?
Kevin Plexico We collected the surveys in the January timeframe. So I would say it was after people knew that there was a new administration coming in that was going to be very different than the prior administration, but before we saw the wave of change that the Trump administration has implemented with RIFs. So all respondents really had to go on at the time was, there’s a new administration and the new administration has the campaign footing that the Trump administration was bringing in. So we definitely saw some indications of cautionary measures showing up in the results with the change in administration. Also, I think just a general recognition that the government fiscal environment is pretty challenging and expectations of some belt-tightening in certain areas. I think that was sort of the backdrop of the timing, but probably we would get some different responses now than we got then, for sure.
Terry Gerton Did you get a good response rate, a lot of good participation?
Kevin Plexico Great response rate. We had about 900 respondents from a lot of different industries within the government sector. IT consulting obviously is one that’s been one the administration has taken aim at. We do have architecture, engineering, construction firms, and professional services firms well represented as well.
Terry Gerton So really kind of across the spectrum of all of the industries that might be engaged with government contracting.
Kevin Plexico Yeah, I would describe it as any company that’s selling what I would describe as complex services to the government contracting sector.
Terry Gerton So were there any responses or any trends this year that surprised you?
Kevin Plexico The one that surprised me the most is we asked companies how they were adjusting their strategy for the coming year, and 23% said they had no plans to change their strategy. I found that sort of jaw-dropping, given an administration change in the environment and the policy changes, even not knowing exactly what the administration was going to do. That now is an inflection point where almost every company should be reevaluating their strategy and how their strategy aligns with the new administration. So I would say for me, that was one of the biggest surprises, is that some companies were think that they could sort of stay the course with their existing business offerings and solutions.
Terry Gerton That might be one of the questions that they’d give you a different answer to if they took the survey today.
Kevin Plexico Very much so. I would hope so, for sure.
Terry Gerton Well, I found the findings around small business is really interesting. You talk about the unusual pressures and challenges that small businesses are facing, at least given their responses to the survey. Tell us a little bit more about those.
Kevin Plexico Well, I’ll say as the backdrop, the small business industry or small business community in government contracting has faced two really significant challenges. One is around contract consolidation. If you look today versus, say, 10 years ago, the number of unique prime contractors engaged in the market is down by about 20% to 30%. So the number unique prime contracting opportunities for small businesses has also decreased. With the adoption of IDIQ contracts and the GWACs, there’s been this sort of swing by agencies to leverage those contract vehicles versus establishing their own. And that’s meant there’s fewer prime opportunities for small business. The other big challenge that I think small businesses have faced is the rise in compliance costs. It’s not new that companies have to comply with government contract cost-accounting requirements, HR policies, you know, a variety of project management principles such as earned value management. But we’ve also seen the rise in compliance around cybersecurity and controlled unclassified information such as CMMC and FedRAMP and like practices. I think, you know, as a small business, they’re looking at this daunting set of requirements and compliance rules and regulations that they have to navigate in addition to the small business rules, which are pretty complicated by themselves. Trying to make a profit and trying make a buck in this market for a small business can be pretty challenging unless you’ve got some pretty good patience and a pretty savvy investor or owner that knows the way to navigate the space.
Terry Gerton I’m speaking with Kevin Plexico, Senior Vice President of Information Solutions at Deltek. You mentioned the CMMC compliance, you mentioned a number of other aspects, including the current guidance to migrate back to more governmentwide contract vehicles. Seems like a really tough environment for small businesses. What lessons should they be learning here about how to be competitive or if there’s going to be a competitive space for small business?
Kevin Plexico So I certainly think there’s going to be a competitive space. It is going to challenging. You know, my best advice that I give to small businesses is think of compliance as a source of competitive advantage versus this begrudging task. If you can afford to make the investment and compliance capabilities, it’s going to make you easier to do business for a government agency and also separate you from a lot of small businesses that probably are going to be less willing to make that investment until they earn some money. And I think that’s sort of the trap that some companies might find themselves in — you’re holding off on making the compliance investment until you win something, but that compliance investment might be the very thing that allows you to win something. So that would be one piece of advice. The other, obviously, is there’s lots of opportunities to take advantage of small business programs. I know there’s been a big shift away from the Small Disadvantaged Business program, but I think there’s still going to be a focus by the administration on small business. Just as an example, if we look back at the prior administration, Trump 1.0, we’ll call it, they increased spending on small business contracting throughout their term and the Biden administration did the same. So I don’t see sort of a reversal of focus on small business. The one thing I think that the SBA needs to be a big voice in the industry and the market for the administration is being mindful that it’s not just small business dollars spent, it’s also small business participation that matters.
Terry Gerton That’s great advice. And there’s a feature of this survey that is the scorecard with averages and high performing scores against a long list of performance metrics. That’s a place where every business who’s interested in doing work with the government on contract could look to see kind of how they compare and what the features of successful firms I have been, right?
Kevin Plexico One of the things we try to really do with this study is not just reveal sort of benchmarks and best practices, but also pull out those companies that are sort of in the upper tier of the performance metrics in certain areas, whether it be finance and operations or business development, and then show comparable categories and how they scored in those areas. So if you’re aspiring to be sort of best in class or even just improve your ability in certain areas, you can sort of hold your metrics against what the top performers are doing and use that as an opportunity to sort of self-evaluate where you might need to make some process changes or policy changes or strategy changes for your business.
Terry Gerton There’s another feature that I found really interesting, the government contractor confidence index. What is that telling you these days?
Kevin Plexico What we try to do is give a sense for the mindset of companies. It’s sort of a combination of metrics around, how did you do last year? How are you expecting this year per the comments we had early on? Generally, industry is pretty bullish about the industry. And this year was no exception. There’s generally a favorable view of the industry, but it was down, not surprisingly, from the prior year. The biggest challenge that I think we faced in this industry is just the uncertainty that we are constantly under. There often doesn’t seem to be a clear plan or a clear set timeframe for when appropriations might get done. Even when we have an idea of what appropriations are going to be, it doesn’t mean you necessarily know when you’re going to get them. And that creates an environment where agencies are reluctant to spend money until they have their own visibility, which of course creates cash flow and planning challenges for companies. The index really gives us a sort of barometer, temperature check of how industry’s feeling about the market. It’s not surprisingly down this year. And I think the other key thing that’s just so interesting right now is depending on your perspective and what agencies you’re doing business in can have a really big impact on your perception of the market.
Terry Gerton Right, as we’ve seen it play out, I suspect you might get some different responses when you do your 2026 survey.
Kevin Plexico I would guess if somebody’s in the State Department or U.S. Agency for International Development and their Department of Education, they’re going to be very different than if somebody is in the aerospace defense market, which, you know, if the one big, beautiful bill passes and becomes law, it’s going to a big opportunity for the defense and homeland security industry for sure.
The post The table stakes for government contracting are increasing, and so is uncertainty first appeared on Federal News Network.