U.S. government contractors may find themselves walking a tightrope of volatility, uncertainty and change due to a confluence of factors including the effects of the pandemic, supply chain challenges, inflation and new rules on cybersecurity.
At the same time, a push for advanced defense systems, infrastructure and green products and services offers opportunities for continued growth that can set them up for long-term success.
Here are four strategies government contractors should consider to win business opportunities today.
Update cybersecurity compliance
As cyberattacks become more sophisticated, businesses must continue to build their defenses against them. Highly sensitive government data can be an appealing target for bad actors, so defense contractors must carefully safeguard information by adhering to the DoD’s Cybersecurity Maturity Model Certification, or CMMC, program.
In November 2021, the DoD announced CMMC 2.0, which introduced consolidated levels meant to simplify compliance. Although rulemaking isn’t finalized (and timelines for finalization could range from early 2024 through 2025), contractors should familiarize themselves with CMMC 2.0 requirements. For instance, once rules go into effect, level one defense contractors must comply with 17 best practices, such as requiring multifactor authentication for system users.
Companies that want to mitigate risk might consider partnering with a cybersecurity expert that can help them navigate the CMMC compliance process.
Address ongoing supply chain hurdles
Though inflation rates are down from their 2021 and 2022 highs, the financial impacts of the past few years are still echoing across supply chains. Inflated costs associated with shipping, energy, labor and materials significantly impacted government contractors, many of whom were stuck in firm-fixed-price contracts that no longer mirrored the economic reality. As a result, some had to choose between continuing to lose money or withdrawing from the contract.
In early 2022, the General Services Administration, which provides purchasing options for federal agencies, temporarily removed restrictions on economic price adjustments in contracts, and earlier this year, they extended that policy through the end of September 2023.
There’s no guarantee that this moratorium will be extended again, so contractors must work with agency partners to fortify their supply chains and ensure they can continue delivering goods and services.
Carefully weigh M&A
For government contractors, mergers and acquisitions have long been a critical growth strategy, and the increased appetite for technology and defense-related products has created an atmosphere ripe for deals. In 2022 alone, 140 M&As occurred in the government market, and while that number was down from the 190 deals that went through in 2021, it was still higher than the annual average of around 100.
Buyers interested in acquisitions should consider that a higher volume of deals can drive up prices. When considering a deal, buyers need to look at targets’ past performance to assess whether their capabilities are well-aligned and what expansion opportunities exist.
Seize new opportunities
Over the past three years, three pieces of legislation were signed into law to help catalyze the U.S. industrial sector. The Bipartisan Infrastructure Law, the CHIPS & Science Act and the Inflation Reduction Act will collectively inject approximately $2 trillion in federal spending over the next decade—some of which will be used to upgrade or replace aging infrastructure throughout the country.
The scale of this spending may encourage companies that haven’t previously worked as government contractors to throw their hats in the ring. Companies that are a good fit for the job should submit bids, but they need to understand key differences between the public and private sectors.
Some private sector practices—such as passing along increased costs—may be prohibited when dealing with government agencies. Additionally, government work comes with crucial compliance requirements, special rules for communicating and negotiating and other standards.
For some government contractors, an evolving landscape may sound like an exciting challenge worth meeting. By employing these strategies, businesses can realize new ways to build for the future and support government agencies’ important missions.
Edward Spenceley is Senior Vice President and National Government Contracting Specialist at Bank of America Global Banking and Markets