Contractors expecting increase in growth, Deltek study finds

Deltek’s latest Clarity study of the government contracting industry found a growing “overtone of optimism and confidence” among the more than 400 business leaders surveyed for the report. That’s in stark contrast to the “mood of caution” among contractors surveyed for the report last year, when sequestration and the budget impasse plagued the government market.

It’s a different story this year. Deltek’s fifth annual GovCon Industry Study, released Thursday, revealed that with a stabilizing U.S. economy and the federal budget set for two years, contractors are seeking ways to expand, both organically and through mergers and acquisitions.

“Anticipating success in these ventures, growth predictions are bold,” the report said.

The number of large contractors (with revenues of $100 million and up) predicting a 10 percent to 19 percent growth rate for the current year soared to 33 percent from just 5 percent in 2013. Smaller companies expected nearly 14 percent growth in 2014, up four points from last year.

For 2015, companies across the board expected an average growth rate of 14 percent. “While growth indicators look promising to us also, we feel these numbers may be a bit aggressive,” the report’s authors commented, suggesting that a 7 percent to 9 percent range is more realistic.

Overall profits remained flat at just under 11 percent, marking a leveling off after two years of big gains. A contributing factor was a drop in profits at large companies that was offset by a rise in profits at smaller firms, according to the researchers.

In the area of project management, bigger isn’t necessarily better, researchers said. Across project management metrics, smaller firms showed advancement while larger firms slipped. Some 70 percent of mid-size contractors reported high or very high visibility into their project status, up sharply from 38 percent last year. In contrast, all firms in the $1 billion revenue bracket reported low visibility.

Researchers found a similar disparity in project status confidence and schedule adherence. About 75 percent of smaller firms (under $20 million in revenues) reported high project-management maturity, up from 50 percent last year, providing a beacon of light for project management.

“The smallest companies seem to have grabbed the project management bull by its horns and are driving it in the right direction,” according to the report. “This is a big leap forward for these smaller companies, which again appear to be preparing themselves for a competitive marketplace where every dollar of profit is precious.”

In comparison, 10 percent of $100 million-plus contractors rated their project management discipline as very immature.  “We will be keeping an eye on this metric,” researchers commented. “Its continued expansion would spell trouble for big firms.”

The study found that the top three challenges in project management facing companies over the next two to three years are inexperienced project managers, accurate project cost forecasting, and poorly defined scope. It was the fourth consecutive year that companies cited inexperienced project managers as their top hurdle.

Risk management fared reasonably well in the survey with just over 50 percent of all contractors stating that they are somewhat mature or very mature in this discipline. But researchers cautioned that a dearth of collaborative risk management tools has hindered progress in this area.

This year’s study concluded on something of a down note as researchers waded into the human resources waters for the first time.

“Our first-ever foray into the human resources function confirmed the whispers that have floated in the halls: [government contracting] is on the front end of a talent crisis,” researchers said. “Negative press, executive salary caps, declining benefits and other issues are turning away high-potential hires.”

The survey showed that the top three human capital challenges are closely intertwined. In order, they are the availability of good candidates, matching those candidates to an open position, and the ability to offer competitive compensation.

On top of these problems, “a looming wave of retirements will drain longtime experience from industry at a time when it will be challenged to replace it,” according to researchers. The government contracting community has to make resolving human capital issues a priority, they concluded.