How government contractors can capitalize on the opportunities ahead
Edward Spenceley (left) is Bank of America's national government contracting executive, and Ed Shea is president of Bank of America Central Massachusetts.
Government contractors in Massachusetts may find themselves walking a tightrope of volatility, uncertainty, and change due to a confluence of factors, including the effects of the COVID 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 growth to create long-term success.
Here are four strategies government contractors should consider.
1. Update cybersecurity compliance. As cyberattacks become more sophisticated, businesses must 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 U.S. Department of Defense’s Cybersecurity Maturity Model Certification program.
In November 2021, the DoD announced CMMC 2.0, which introduced consolidated levels meant to simplify compliance. Once rules go into effect, level one defense contractors must comply with 17 best practices, such as requiring multi-factor authentication.
2. 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 echoing across supply chains. Inflated costs associated with shipping, energy, labor, and materials impacted government contractors, many of whom were stuck in firm-fixed-price contracts no longer mirroring reality.
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, GSA extended that policy through the end of September. There’s no guarantee this moratorium will be extended again, so contractors must work with agency partners to fortify their supply chains.
3. Carefully weigh M&A deals. For government contractors, mergers and acquisitions have long been a critical growth strategy. In 2022 alone, 140 M&As occurred in the government market, and while that number was down from the 190 deals in 2021, it was higher than the annual average (100). Buyers interested in acquisitions should consider 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.
4. 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 $2 trillion in federal spending.
The scale of this spending may encourage companies which 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.
An evolving landscape may sound like an exciting challenge. By employing these four strategies, businesses can realize new ways to build for the future.
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