Government Contracting Industry Trends · Note: Contract Spending for 2011-2013 are Deltek...

Kim Koster

Director of Product Marketing,

Deltek

1 © 2012 Deltek, Inc. All Rights Reserved

Government ContractingIndustry Trends

Federal Budget Outlook –Implications for Government Contractors

Federal Spending - $3.7 Trillion

Grants$138B

Salaries$470B

Contracts$550B

Interest on

Debt –$250B

Mandatory –$2.1 Trillion

Discretionary$1.3 Trillion

Other$138B

3/22/20123 ©2012 Deltek, Inc. All Rights Reserved

Federal Spending and Flow Down to Contracting

Insights on 2013 Budget Request


It is just a request – appropriators have final say

Assumes „sequestration‟ is avoided

Spending again flat to declining

Total budget authority: down 2% to $3,667B

Total discretionary budget authority: down 4% to $1,147B

Achieves reductions through

Cutting or consolidating programs

Cut improper payments/waste, fraud and abuse

New defense strategy – force reduction, getting rid of old systems in

lieu of more robust ISR and cybersecurity tools, reducing Overseas

Contingency Operations (OCO) spending

Discretionary Spending and Contract Spending – 10 Year Trend


Source: President‟s Budget, FY 2013, USASpending.gov and DeltekNote: Contract Spending for 2011-2013 are Deltek projections

6 3/22/20126 ©2012 Deltek, Inc. All Rights Reserved

Source: Budget Control Act, Deltek GovWin IQ

Impact of Budget Sequestration on Discretionary Spending

Source: President‟s Budget, FY 2013

12 Agencies with Decreasing Budgets

Total Decrease of $26B


Agencies with Declining Budgets, 2012-2013

Source: President‟s Budget, FY 2013

9 Agencies with Increasing Budgets

Total Increase of $8B


Agencies with Increasing Budgets, 2012-2013


Source: President‟s Budget, Deltek

Agency Dependence on Contractors

Consolidation

Leverage cloud

Improve performance

Waste, fraud and abuse

detection

Increases in nuclear

safety and energy

Energy efficiency/

renewable

4% increase in VA

Health Care

CMS up 26%

10% increase in DHS

IPIS organization

Real-time security

monitoring

Network security

Budget

Streamlining

Cyber

Security

Healthcare

Energy /

Conservation


Growth Areas for Contractors

Conclusions


Assuming sequestration is avoided

Contract spending slightly declining in FY2013

But there will be pockets of modest increases and more significant decreases

Budget environment leading to much more competitive landscape

More „low price technically acceptable‟ bids

Companies need to

Position for growing areas – either through acquisition or organic growth

Ensure operational effectiveness in new environment

The Purpose of the Clarity Survey


Develop a fact-based baseline against which

to measure future changes and trends

To establish industry benchmarks for our

customers to measure themselves against

The Clarity report this year will focus on:

Business Development

Project Management

Financial Management

Compliance & Risk, Issue, Opportunity

management

Who Responded to the Survey?


Business Development



2011 Growth Rates


At 7.3%, growth is half what it was in 2010

Firms that reported negative growth doubled over 2010

2010 Growth Rates 2011 Growth Rates

2012 Growth Projections


Despite 2011 growth fall off,

companies are extremely bullish

for 2012

Average growth projection is 19.6%

2012 Growth Projections

M&A Plans for 2012


“Definite M&A Plans” tripled in large firms

“Definite M&A Plans” doubled in mid sized firms

2011 M&A Plans 2012 M&A plans

Contract by Type


Fixed-Price up 10% yr/yr

Cost Reimbursable up 15% for larger firms

2010 Contracts by Type 2011 Contracts by Type

Top Business Development Challenges


Importance of Business Development Initiatives


Reasons for Not Pursuing Relevant Opportunities


Project Management



Project Visibility by Firm Revenue


High visibility declining in Large and Midsized firms

High visibility improving in Small firms

2009 Project Visibility 2011 Project Visibility

Project On / Under Budget


Projects coming in on or under budget improving in 2011

10% of firms with 0-9% growth struggle to meet budget targets

2010 Project On/Under Budget 2011 Project On/Under Budget

Project Management Maturity


Overall maturity is on the rise

Very Mature project management

discipline nearly doubled yr/yr

Small firms saw a 10-point increase in

Very and Somewhat Mature

responses

Percent of Project Managers with PMPs


Certification percentages are up across the board

Firms reporting less than 10% PMP certification of program managers

shrinks every year

2010 % of PMPs 2011 % of PMPs

Presence of PMO / PCO


3-year expansion in the number of firms reporting No PMO

Small firms saw a staggering 50-point increase in No PMO – to 70%, up from 20% in 2010

2010 PMO Discipline 2011 PMO Discipline

Top Project Management Challenges


Section 3: Financial

Metrics & Operations



Net Profit


Profit margins nearly double yr/yr

1/5th mid-sized firms had profit margins greater than 10%

55% of small firms reported double-digit profits

2010 Net Profit 2011 Net Profit

Average Invoice Cycle


Overall average invoice cycle are up yr/yr from 10.1 to 12.2 days

Small sized firms continued a 3-year trend towards longer invoice cycles

2010 Invoice Cycles 2011 Invoice Cycles

Days Sales Outstanding


Overall average DSO was down nearly 20% on average from 42.8 to 52.6 days yr/yr

2010 DSO 2011 DSO

G&A Rate (as Percent of Revenue)


Overall G&A rate is 13.4% of total

annual revenues, down from 16.7%

last year

On the whole, small- to mid-sized

companies have higher G&A rates

More than 30% of small firms reported

a G&A rate of greater than 20%

Composite Fringe Rate by Firm Revenue


OBSERVATIONS

This year‟s overall average composite

fringe rate is 28.6%, down from 32.5%

last year

Small firms reported a significant

increase in low 0-14% fringe rates

25% of large firms reported 45%+

fringe rates, up from 20% in 2010 and

none in 2009

Top Finance Challenges


Section 4: Compliance

& Risk Management



Level of Government Oversight


Government oversight spiked to over 60% from last year‟s 42%

Responses in “Decreased” and “Stayed the Same” categories both dropped

2011 Government Oversight2010 Government Oversight

Top Audit Issues


RIO Management Maturity


Overall, roughly half of firms consider their RIO practices Mature and half

consider them Immature

Mid-sized firms have the furthest to grow as only 5% report being Very Mature

Small firms are the most variable with

a significant percentage of responses

in every category

Scope of the RIO Management Initiatives


More than 4 in 10 firms characterized

their RIO initiatives as Organization-

wide

15% - 18% of small and mid-sized

firms have no RIO Management

initiatives

Leader of RIO Management Practices


CEOs and COOs were virtually tied

for leading

CFO‟s came in third with 21% of

responses

Only large firms reported having a

Chief Risk Officer to oversee RIO

A large portion reported varying roles

having RIO responsibility.

Organizational Functions Benefitting From RIO


Likely RIO Triggers


Importance of RIO in Years to Come


All Large firms agreed that RIO grow

in importance over the next few years

Small and mid-sized firms were split

70/30 on whether Risk Management

importance would increase

No one predicted a decrease in

importance


Thank you for participating!

Email me with additional questions:

Contact Information:

Kim Koster

[email protected]

M: 571.926.0619

The Purpose of the Clarity Survey


Don‘t miss Deltek Insight 2012 in Nashville!

Explore our huge government contracting track with sessions covering

Business Development, Financial Management and Program Management!

Registration Opens in Mid-April

Watch for updates at www.deltekinsight.com

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