By Kim Koster, Vice President of Industry Marketing at Unanet
The 2024 GAUGE Report, a collaboration between Unanet and CohnReznick, is an essential resource for the government contracting community. We recently released the eighth annual edition, and it remains a valuable tool for government contractors looking to evaluate themselves against other GovCons while also getting key insights into emerging industry trends and challenges.
As we approach 2025, GovCons need to continue finding a balance between operational efficiency and strict compliance. Using forward-thinking technology to achieve these ends presents a challenge and an opportunity for companies to innovate and stay ahead.
This year’s edition of the GAUGE discusses the role of AI in managing operational efficiencies and compliance, and how GovCons can leverage AI insights to secure more federal contracts. Let’s take a closer look at some of the highlights from this year’s GAUGE Report.
Navigating the Future: AI in Government Contracting
The government contracting sector stands as a pillar of stability, with steady growth on the horizon. The defense budget is expected to increase indicating ongoing investment. Many firms see finding new revenue and securing new contracts as a major challenge (more on that below).
Despite these obstacles, 71 percent of firms remain optimistic, emphasizing the importance of personal relationships in developing opportunities. One of the biggest potential game-changers for GovCons, as it is in any industry, is artificial intelligence.
Technology’s rapid advances will reshape government contracting through AI. Automating routine tasks, AI enhances data analysis and spotlights risks, freeing compliance officers to make strategic decisions.
Despite these technological advancements, GovCon leaders continue to face significant challenges in resource recruiting and retention. Although these issues have slightly decreased since last year, they remain a top concern, affecting the ability to maintain a skilled and reliable workforce.
Here were some of the other major takeaways from the GAUGE in each of its key focus areas:
Government Contract Compliance
Compliance requirements are tightening, with business systems now a key part of requests for proposals. The upcoming Cybersecurity Maturity Model Certification 2.0, expected by December 2024, will sharpen the focus on cybersecurity. Additionally, 36 percent of respondents foresee ESG compliance significantly impacting their operations.
Accounting
Cash is king with 75 percent of respondents keeping their days sales outstanding, or DSO, at or below 45 days.
Accounts receivable and accounts payable functions represent big opportunities to gain efficiencies via tech. A variety of tools exist to automate invoice delivery and tracking, payment acceptance and posting and reconciliation. Yet 51 percent of firms automate less than a quarter of their AR/AP processes.
Utilization
Rising full-time equivalents, or FTEs, across all areas show an increase in workforce indicating a move toward stabilization. The increase in compliance FTEs is an indicator that companies are investing in compliance excellence.
GovCons still see tackling resource management as their biggest challenge, so improvement in that area is rich for finding efficiencies. It’s great to see that companies are forming and creating project management offices and the trend to centralized is a good indicator that companies are focusing on improved project delivery. Project management processes are maturing, marking a positive shift toward better operational performance.
Growth
Finding new revenue streams is the top financial challenge for 57 percent of firms. Nearly half struggle with limited resources for business development. Additionally, 69 percent face difficulties securing contracts, often due to limited business development resources—a concern for 45 percent of respondents. Yet, win rates are up. This proactive trend shows a commitment to tackling growth hurdles.
Business development is the emerging area for using AI to gain efficiency. 59 percent say they are using or plan to use AI to help fill the gap created by the lack of BD resources and help create winning proposals. An increased win rate is a value to all facets of the business.
Efficiencies
Operational efficiency concerns 30 percent of firms, driving them to adapt to evolving standards. Wrap rates have fallen recently, signaling efforts to boost efficiency. A notable drop in changes to indirect rate structures marks a first in five years.
About 60 percent of firms include fringe costs in their overhead bases. Consultant costs still present indirect cost challenges.
All of these findings point to an industry in which maintaining compliance while optimizing for efficiency should be at the forefront of most government contractors’ minds. As the GAUGE Report reveals, one of the best ways to do that is through the calculated, considerate use of AI.
AI as a Strategic Ally
AI stands out as a crucial partner for government contractors looking to tackle industry challenges. The 2024 GAUGE report highlights AI as a must-have for growth-focused firms, accelerating processes and easing operational resource demands.
AI is proving to be useful in the areas of business development and marketing, while AI’s application in the areas of finance and accounting continues to lag. With a third of industry leaders already using AI, its impact is evident. AI insights can be an incredibly powerful ally in developing strategies, executing projects and increasing proposal success rates.
AI technologies are offering GovCon businesses unprecedented capabilities to enhance efficiency and manage compliance more effectively. It enables firms to do more with less, accelerating processes and reducing the resource strain on operations.
It’s an exciting time to be a GovCon, as modern technology makes it simpler than ever to make business easy. To get the full effect of the GAUGE, I highly encourage you to download and read the entire report. It’s a must-read for any GovCon eager to see where the future of the industry is headed.
