Study: Government Contractors Expect Business to Boom in 2021

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After profits declined during the pandemic, companies continue to explore ways to drum up business in a virtual world.

The COVID-19 pandemic challenged the federal government in numerous ways, shuttering offices, forcing remote operations and collaboration and altering the ways agencies provide services.

Government contractors, too, faced major hurdles in 2020. According to a Deltek’s 12th annual Government Contracting Industry Study, the average profit margin declined last year among all companies surveyed. Industry further reported a 10% decrease in projects that were at or ahead of schedule, dropping from 78% in 2019 to 68% in 2020.

Small government contractors were particularly affected by the pandemic. Profit margins dipped 32%, the percentage of unallowable expenses tripled and costs of bidding and contract proposals rose 43%.

Yet for all the challenges, the study—conducted between January and February—indicates 70% of government contractors are optimistic that government sales will increase in 2021. Further, companies believe some changes to government operations, including remote work, may ultimately prove beneficial to workforce and service improvements.

“While contractors did experience lower contract values and delays in 2020, these effects of the pandemic are expected to lessen moving forward,” the study states. “Additional challenges resulted from a sharp shift to a virtual workplace, but companies adapted and learned how to manage and work remotely. The lingering effects of virtual workforce policies could greatly expand the range of available talent and facilitate successful competition for new hires as companies would no longer be limited to certain geographies.”

Industry expressed the most bullishness for growth in federal information technology, with 35% of companies expecting “significant growth” in 2021. Professional services (34%) and aerospace and defense (34%) are also expected to see significant growth, followed by state, local and higher education spending (25%).

The study also indicates industry is focused on finding new ways to do business in a more virtual world. With in-person events, conferences and meetings still rarities, 83% of companies are seeking new business opportunities from existing client relationships. Fewer (71%) are relying on public bid notices like those found on SAM.gov or industry events or conferences (61%).

“Going forward, companies will have to continue to learn how to team in a virtual world. Some may decide that the costs in time and money to reprise an active face-to-face schedule may not be the best use of resources. Some resetting of business development approaches will certainly occur, with differing approaches by varying sizes of companies,” the study states. 

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