Kim Koster
Director of Product Marketing,
Deltek
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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
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Federal Spending and Flow Down to Contracting
Insights on 2013 Budget Request
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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
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Source: President‟s Budget, FY 2013, USASpending.gov and DeltekNote: Contract Spending for 2011-2013 are Deltek projections
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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
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Agencies with Declining Budgets, 2012-2013
Source: President‟s Budget, FY 2013
9 Agencies with Increasing Budgets
Total Increase of $8B
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Agencies with Increasing Budgets, 2012-2013
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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
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Growth Areas for Contractors
Conclusions
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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
Government ContractingIndustry Trends
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The Purpose of the Clarity Survey
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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?
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Business Development
Government ContractingIndustry Trends
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2011 Growth Rates
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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
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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
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“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
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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
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Importance of Business Development Initiatives
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Reasons for Not Pursuing Relevant Opportunities
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Project Management
Government ContractingIndustry Trends
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Project Visibility by Firm Revenue
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High visibility declining in Large and Midsized firms
High visibility improving in Small firms
2009 Project Visibility 2011 Project Visibility
Project On / Under Budget
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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
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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
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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
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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
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Section 3: Financial
Metrics & Operations
Government ContractingIndustry Trends
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Net Profit
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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
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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
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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)
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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
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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
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Section 4: Compliance
& Risk Management
Government ContractingIndustry Trends
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Level of Government Oversight
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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
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RIO Management Maturity
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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
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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
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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
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Likely RIO Triggers
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Importance of RIO in Years to Come
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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
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Thank you for participating!
Email me with additional questions:
Contact Information:
Kim Koster
M: 571.926.0619
The Purpose of the Clarity Survey
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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