deltek insight 2011: current and emerging challenges for government contractors
TRANSCRIPT
ECT-209Current and Emerging Challenges for Government Contractors
Insight 2011Presented by:Alan Chvotkin, Professional Services CounselPeter Lauria, Baker TillyBrent Calhoon, Baker Tilly
April 18, 20232 ©2011 Deltek, Inc. All Rights Reserved
Project Manufacturing
Human Resources
Project Management
Financial Management
Enabling Success
Winning More Business
Reducing the Cost of Compliance
Increasing Project Visibility
Improving Cash Flow
CRM and Capture Management
Teaming Solutions
Market Intelligence
Business Performance Management
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Project Manufacturing
Human Resources
Project Management
Financial Management
Know More
CRM and Capture Management
Teaming Solutions
Market IntelligenceWin More
Do More
Project & Org Budgeting
Analytical Workspace
Resource Visibility
Enterprise Reporting
Business Performance Management
Know More
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Agenda Forecast: Stormy Weather
A new kind of deficit Uncertainty is certain for foreseeable future Government workforce challenges
Storm Watch for Contractors Industry’s four major challenges Policy trends that increase business risks
April 18, 20235
Forecast: Stormy Weather
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April 18, 20236
A New Kind of Deficit
Public debt projected to rise to 75% of GDP (from 62% today) by 2016; will remain above 70% for the foreseeable future;
Debt ceiling will need to be raised from current $14 trillion to $19+ trillion
Interest on the debt will increasingly dominate the deficit
All mandatory spending (interest + entitlements) rising from 62% of the budget to 72% by 2016
Unchecked, interest on the debt will rise from 15% of the deficit today ($196b) to 81% ($494b) by 2015 and 100% ($845b) by 2021
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A New Kind of Deficit (cont’d)
Traditional deficit reduction strategies will not solve the problem
Adjustments to discretionary spending will help but not come close to closing the deficit
Real questions exist as to whether the political will is there to take on the core issues associated with mandatory spending and tax policy
The question is not whether there will be austerity; the question is what will it look like?
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Uncertainty is Certain
FY 12 funding debate will be fierce; chance of regular appropriations is low Administration’s February budget submission reflects 5% reductions and 5 year
“freeze” for non-security agencies (based off FY11 request); also calls for 5.3% increase in security agency funding (over FY10)
DoD total is below FY10 actual and FY11 proposed due to OCO reductions; base budget proposed at 1% above FY11 request and 4.3% above FY10 actual
New GOP leadership seeks reductions of $75b-$100b House GOP Approps allocations for FY 12 include double-digit reductions in all
agencies except Defense, VA and DHS (2%-3% each); reductions based on FY11 committee allocations
Republican Study Committee proposed deeper cuts Divisions in Democratic Caucus also emerging
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Uncertainty is Certain (cont’d)
Fiscal Commission proposed major across-the-board reductions, from entitlements to civil service; will be a significant factor in budget debates
Did not get the desired 14 (of 18) votes; but legislation implementing recommendations already introduced
“Gang of Six” and Senators’ letter to President could affect the dynamics
Pressures on discretionary spending will remain acute
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Government Workforce Challenges Despite more hiring than at any time in more than 15 years, the composition of the
workforce remains much the same in age and occupation Almost 4 times as many employees over 50 as under 30 Mid/peak career numbers have been dropping for years and continue to do so Ratio of professional/administrative and technical occupations unchanged for a
decade
Professional & Administrative;
61%
Technical ; 18%
Clerical; 7%
Other White Col-lar; 4%
Blue Collar; 10%
Occupations of All Federal EmployeesSeptember 2010
29 and Under; 11%
30-39; 19%
40-49; 28%
50-59, 30%
60 and Over; 12%
Ages of All Federal Employees Sep-tember 2010
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April 18, 202311
Government Workforce Challenges (cont’d) Since 1967, the civil service component of the “total force” has been a
consistent 24-26%
At macro level, the principal shift has been from military to contractor and in the mix of work performed by each of the three sectors (military, civilian, contractor)
Most contract growth driven by new requirements for which organic skills are not available
The most needed skills remain those that are in short supply and for which the government is generally least competitive; and involve the highest priority missions
Cyber, intel analysis, IT, systems and other engineering, etc. Two year federal pay freeze in effect; legislation proposing hiring freeze
introduced. The combination will further exacerbate government competitiveness for talent
Government/commercial technology compensation gap is growing—and becoming an issue for both the customer and gov’t contractors
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April 18, 202312
Storm Watch for Contractors
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April 18, 202313
Industry’s Four Major Challenges
Government “efficiency initiatives” currently prevalent at DoD, DHS and DoS, and spreading
Insourcing most pronounced at DoD but shows signs of life elsewhere
The performance agenda offers both challenges and opportunities
Acquisition improvement initiatives/other emerging policies could significantly alter the government-industry business relationship
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April 18, 202314
Policy Trends Increase Business Risk Compliance—No Signs of Abating
Business system internal controls – what’s coming and how far will it go? OCI/PCI Small Business Rules—compliance with ratios, affiliation and more Suspension and Debarment—the default rather than last recourse?
Efficiency Initiative Irony DFARs business system rule – cost vs. benefit? Shrinking budget = shrinking business base Government distaste for contractor consolidation – competition vs. efficiency? Increasing enforcement of Excessive Pass-though Charge rule Government tendency to drive down profit rather than reward efficient
performance
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April 18, 202315
Policy Trends Increase Business Risk (cont’d)
DoD IR&D Reporting Increased transparency and communication – or – A renewed area of bureaucratic oversight?
DCAA – retreating or reloading? Renewed focus on “risk” Balanced opinions or reporting of negative “findings”?
Innovation—Will the process enable it?
Shortening contract length at odds with goal of more innovation, continuous improvement
Disappearance of best value awards Competition—Where and how?
What does “more competition” look like in an already competitive market? DoD focus is on single offer awards; but what’s the right balance? As FFRDCs and NGOs gain more traction, how will the market be
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April 18, 202316
Policy Trends Increase Business Risk (cont’d) Pressures around contract type
Move to more fixed-price but managed as cost type; dispute/claims to follow?
Distaste for T&M could impact portfolio balancing Will portfolio profitability be further impacted by emergence of weighted
profit guidelines for services? Transparency—How much is too much?
FAPIIS live on April 15—but business rules remain incomplete ARRA reporting rules could be extended to all contracts Public posting of more contract data likely
Communications—A bright spot
DoD, OFPP seeking to revitalize government/industry engagement DCMA/DCAA coordination and cooperation?
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April 18, 202317
QUESTIONS?ALAN CHVOTKIN
EXECUTIVE VICE PRESIDENT
AND COUNSEL
PROFESSIONAL SERVICES
COUNCIL
(703) 875-8059
WWW.PSCOUNCIL.ORG
BRENT CALHOON
PARTNER
BAKER TILLY
(703) 923-8311
BAKERTILLY.COM
PETER LAURIA
PARTNER
BAKER TILLY
(703) 923-8662
BAKERTILLY.COM
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