Government ‘Unmet Requirements’ a Boon for Professional Services Market

Nov. 30, 2020

[With $597 billion at play, our analysts have created your guide to the 200 government contractors changing the federal market in fiscal year 2019. Download the full report.]

Federal spending on professional services continues to grow as the year concludes. The market, spanning services such as engineering, marketing, and management consulting, grew by $5.4 billion from 2018 to 2019 alone, and now totals $84.2 billion.

Amid this growth, small businesses have made significant gains. In all, small business accounted for nearly $28 billion of the $84 billion spent on professional services in 2019.

Meanwhile, some of the most significant spending increases occurred in the areas of research and development, facilities and construction, and supplies and equipment, the study noted. On the civilian side, demand for professional services has increased across the health care domain – in particular, within the Department of Health and Human Services as it leads the current pandemic response.

Big Market Players

In this environment, big-market entities such as General Dynamics maintained a lead, the BGOV200 study noted. The Reston, Va.-based global contractor has dominated the market “through work on a single-award contract providing contact center operations” to HHS, the BGOV200 study reports.

In all, Covid-19 has shifted growth areas across the professional services market, experts say.

“Analysis of the industry before Covid-19, as it relates to professional services, really focused on the areas of software-as-a-service, cloud consumption, data analytics, artificial intelligence, and machine learning, as well as security and collaboration,” said Bryan Thomas, senior vice president of public sector sales at World Wide Technology (WWT). Since Covid-19, however, the focus has shifted to “developing a digital workspace at scale,” Thomas said.

Government Services, Front and Center

Across government, the pandemic has brought agency relevance – and frailties – to the forefront.

“The pandemic put the role of government services front and center and accelerated many of the core challenges,” said Mike Canning, head of Deloitte’s government and public services practice.

Current challenges include sharing information across government agencies and jurisdictions securely and “digitizing government services to better meet the public’s expectations around convenience and to help manage [the] spread of the virus,” Canning said.

Faced with these challenges, investment in human capital is vital, experts say. “So that they [government is] prepared for the growing needs of the digital world,” said Mike Herrinton, U.S. government and public sector lead at Ernst & Young.

[Ernst & Young landed at No. 181 on the BGOV200 list for FY 2019.]

Automation Demand Grows

In addition to service demand surges, budgetary pressures will compel government entities to optimize operational efficiencies, experts say. Federal agencies will continue to embrace document automation and artificial intelligence platforms, said Karl Jensen, executive vice president of AECOM’s national governments business.

Similarly, government employees and contractors will increasingly need to leverage emerging technologies such as AI, data analytics, and robotics to address the critical tasks, Canning said.

$597 Billion at Play

Good news for professionals who are government contractors after an onslaught of challenges in the first half of 2020 – contractor spending is up from last year. Examine the list of the top government contractors.

Opportunities for Innovation

Where challenges abound, so do opportunities for innovation within the professional services sector.

In this vein, testing and research labs such as WWT’s Advanced Technology Center aim to foster a collaborative environment for information technology innovation, which in turn can decrease overall costs, as well as risks, on the government side while increasing governmentwide capabilities, Thomas said.

Beyond innovation that facilitates public services, engagement with employees is also important, particularly as the pandemic reshapes workplace norms, said Dr. Malia Villegas, vice president of community investments of Afognak Native Corporation. “Remote work requires a more disciplined approach for managing relationships to ensure quality of work and processes are being followed,” Villegas said.

[Afognak Native Corporation came in at No. 147 on the BGOV200 list for FY 2019.]

Strategic Partnerships

Further innovations can address challenges accessing global work locations because of coronavirus-related travel restrictions, Jensen said. To mitigate the disruption, strategic contractors will expand “virtual technologies and capabilities to mitigate some of these challenges,” Jensen said.

Having a global footprint can help minimize supply chain and travel disruptions created by the pandemic. Partnering with other technology companies can also help contractors advance professional services to federal clients worldwide.

Yet partnerships should have a strategic vision, Villegas said, “to identify the right experts to broaden service options and thus provide better turnkey solutions.”

Cybersecurity Imperative

With increased digitalization and remote work, cybersecurity requirements will become “more rigorous and challenging,” Villegas said.

“There will continue to be an emphasis on confirming that our suppliers are compliant with Cybersecurity Maturity Model Certification (CMMC),” Jensen added, referencing the new mandate from the Department of Defense for companies within the DoD supply chain to attain certification by 2026.

Push Toward BICs, Greater Oversight

Beyond the CMMC requirement, the professional services sector continues to see a larger industrywide shift toward best-in-class contracts.

“Some agencies continue to push a large volume of their work through best-in-class professional services contracts,” AECOM’s Jensen said, noting the “broader scope” for services these contract vehicles bring to federal agencies. Similarly, spending obligations through best-in-class contracts continue to gain momentum, reports Bloomberg Government’s BGOV200 study.

Another contracting trend to watch is congressional oversight.

In particular, government oversight agencies are poised to “catch up on audit backlogs and Truth in Negotiations Act (TINA) oversight,” Jensen said, referencing the act that requires contractors to disclose pricing data for negotiated procurements of $2 million or more.

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On the M&A Front

Amid greater oversight, mergers and acquisitions will also reshape the industry.

Experts anticipate greater emphasis on M&A, with a “reduction in the number of contractors in the federal arena and an increase in their size and capabilities,” WWT’s Thomas said.

This shift will result “in a consolidation of companies focused on providing service-related work to the government,” Thomas added. In parallel, “target companies were acquired for their government work as many contractors looked to buy access to customers through acquisitions instead of growing organically” in 2019, Bloomberg Government’s BGOV200 reports.

BGOV forecasts professional services spending to be $81 billion for fiscal 2020. The need is likely to continue, as the federal government stands “at the center of [the] economic recovery,” Jensen said.

“The government has a long list of unmet requirements that could be funded in order to provide significant job growth in professional services,” Jensen added. These include infrastructure and additional coronavirus recovery stimulus packages.

“The role of government will continue to increase over time,” EY’s Herrinton said. And with it, professional services will continue to see strong government demand.

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