Name: GovCon Market Conditions for Q2: Navigating a Market in Motion
Uploaded: 2026-05-05T16:30:57.448Z
Duration: 54 min 8 s
Description: GovCon Market Conditions for Q2: Navigating a Market in Motion

Transcript for "GovCon Market Conditions for Q2: Navigating a Market in Motion": Hello, everyone, and thank you for joining us for today's webinar, GovCon Market Conditions for q two, navigating a market in motion. Before we begin, just a, few administrative items we wanna cover. Let me go ahead and advance our slides here for you. First, we wanna remind you that for the best webinar experience, you can, use Google Chrome or Firefox. If you do have any questions throughout today's presentation, you can go ahead and type them into the q and a box at any time during the presentation. We're going to try and address as many questions as we can at the conclusion of the webinar, and then any that we do not get to, we will be sure to address individually offline following today's presentation. Related documents, including the presentation slides that you'll be seeing today, they can be downloaded. You'll find those in the documents tab on the right hand side of your screen. So you can click into that. You'll find those slides as well as some, related resources that might be helpful for you. You'll also be receiving the on demand recording of today's webinar, and that will be sent via email within twenty four hours after the webinar ends. So with that, I would like to go ahead and introduce our speaker for today. We are pleased to welcome Kevin Plexico. Kevin is the senior vice president of information solutions here at Deltek, a frequent industry speaker, and joins us on a quarterly basis for these market conditions and federal trends webinars. We're happy to have him back today to share data and insights for q two. And with that, Kevin, I am going to turn it over to you. Thank you, Leslie. Appreciate that. Thank you everyone for taking some time out of your day here to, give us an opportunity to share with you some of the things that are going on in the market, and there is a lot going on. Like, a lot just happened just last week. As a matter of fact, we had to do some last minute changes to, to slides to to weave in some of the latest updates around some of the executive orders and, changes that happened last week in terms of appropriations, but we'll jump into that today. I did took a little little creative liberty with the slide title. I think we really are witnessing a pretty significant pivot in spending from, for many civilian agencies to, defense and DHS, and I I call it the $1,000,000,000,000 market pivot. You'll see that here in just a moment as we get into the data. But with, the latest president's budget that came out, just a few weeks ago for the Department of Defense requesting essentially a half $1,000,000,000 increase in defense spends. We also have, the one big beautiful bill that passed last year for I think there was another 500,000,000,000 close to it across defense and DHS related investments, that were, that were passed in the one big beautiful bill. There's just a lot of money shifting from, from what was spent in agencies like the State Department and Agency for International Development and Education as the, the Trump administration sort of puts in place its policy priorities, and we're seeing that show up with some of the actions from Congress as well. It really is, creating this this trillion dollar market pivot. So a lot of companies are sort of stuck in segments of the market that are that are either slow growing or in some cases even contracting. And, other companies are in a great space, you know, in in the defense aerospace market or DHS where they're seeing big growth and it's sort of how do you, navigate from a slow growth market to a higher growth market is one of the the big questions on a lot of people's minds right now. So let's go ahead and jump in. I did wanna, show this one as as we looked at, for those of you who were with us last, last quarter, we we looked at this a little bit. But as you think about what happened in 2025, there was a a a huge increase in spend in air aerospace and defense. You can see that with that 32% increase up on the, right hand side. Health services grew about 15%. And other than that, it was pretty, it was a pretty tough, environment. Information technology, which has long been a stalwart in terms of spend and and growth as agencies look to modernize and invest in new technology as well as cybersecurity. We saw that flatten last year. We saw a decrease with the focus on professional services and some of the Doge efforts, and we also saw a decline in research and development spending largely in some of the civilian areas. So, pretty significant pivot, for some agencies to negative growth, while others increased dramatically. And I think that really left sort of, what takes me to the next slide, a little bit of the haves and the have nots. If you think about companies that were maybe doing business in the agency for international development or Department of Education or HHS, some of the agencies that took some major spending cuts last year, a lot of those companies were finding themselves struggling to, pivot and diversify, with such, you know, quick notice. So I think as you look at the the bar chart on the right hand side, it shows you that for the last fifteen years, we haven't had this small a percentage of companies that have growing in the market. The average has been typically around 40 to 45, or, say, forty forty four to 45% of companies, in any given year that our prime contractors grew. And this past year, it barely broke 40%. So it is, definitely a market where you have some that are the haves, I call them, the people who are the companies that are in markets like aerospace and defense and DHS and maybe Department of Veterans Affairs and some of the health services areas that continue to grow strongly versus some of the other segments of the market where, they found themselves sort of crossways with some of the policies of the administration and and as a result of cuts the administration put in place, really are looking to to grow in other areas. So definitely, this has put a a challenge in in many companies that are sort of stranded in some of these agencies that have been facing cuts and are now looking at how do I pivot and how do I find, faster growth streams for my business. I think, you know, the president's budget tells a little bit of that story, how to do that and what where areas are, opportunities. This just keep in mind, this is a budget request from the administration. It does require, appropriations enactment from congress, and they they obviously historically have had a different perspective on appropriations depending on the appropriation. The request that was made by the administration was a $1,900,000,000,000 discretionary budget that represents a 3% increase versus prior year. But you see here the story with the Department of Defense, a $1,100,000,000,000, number, which is basically a 9% increase, and that's just on the base discretionary number. That doesn't count, the the additional mandatory request that we're gonna talk about here in a little bit, and get into more details later. You see that note called out that there's an additional $350,000,000,000 in mandatory spending. So if you've heard the term a $1,500,000,000,000 defense budget, the way they've they've structured that is a $1,100,000,000,000 base discretionary, funding level, and then there's a call for a a second reconciliation bill that would essentially provide an additional $350,000,000,000 in, in spending for the Department of Defense. That reconciliation bill, be as you if you've paid attention to the language of reconciliation, the the the key distinction of something that gets dealt with in a reconciliation is it doesn't need, to pass the filibuster to get, to get enacted, which means it can be enacted by a simple majority. So the senate and the house, if the the Trump administration can get the Republican party aligned, can get those, those, reconciliation bills passed without needing bipartisan support. Whereas when it comes to appropriations, they need to have bipartisan support because it needs specifically in the senate to pass the filibuster, and therefore needs 60%, support, which therefore does need bipartisan support. Then on the right hand side, you can see, 5.6% reduction in aggregate for civilian agencies. This is also not spread evenly. If you look at law enforcement organizations or, specifically also the Department of Veterans Affairs they're getting strong increases, while you see sort of cuts in some cases significant cuts and again, I'll I'll use the term requested by the administration for many civilian agencies, I just wanted to call out this pattern that we see with historical requests from this and the previous Trump administration, very similar patterns of requesting big increases for national security and defense, sort of funded by steep cuts in civilian agencies. And when the appropriators get to it because it needs appropriator buy in that generally requires bipartisan support, What we've seen is the, the defense budgets, that that are the steep increases getting the, the enactment because I think there's just broad support that we we do need to support our nation's military given the diverse threat profile that we have internationally. But there's not sort of a consensus that we need to make steep cuts to some of these civilian agencies, particularly some of the ones providing some of the, the social services programs such as HHS, also, international affairs like the Agency for International Development, as well as organizations like housing and urban development and, Department of Education. So that just gives you a big picture of the the president's budget request. Again, there's that $1,100,000,000,000 increase, which would be a 9% increase on the defense based budget, plus the 350,000,000,000. That would represent essentially a 40% increase more than a 40% increase in the defense budget, which is by far the largest department budget, of all of all departments. And then, you know, the again, the request would call for some, some steep cuts in certain civilian agencies and other agencies like VA would still have strong growth. Just to put a little bit more detail, this is just looking at some of the major departments, and you can see, air force, a 23% increase, navy, a 14% increase, a little bit less for army and defense and the defense, consolidated group. That's because of some of the unique investments that they're making, shipbuilding, which is centered in navy, space force, and some of the, the spending on the, the Golden Dome would be largely in the air force, so it gives you a sense for where the money is going in terms of prioritization. You can also see some of the agencies that face these steep cuts like HHS, education, housing and urban development, and then state department all facing potentially double digit cuts. Again, I don't know that that will necessarily, be successful through appropriations given the bipartisan support that's required to get it through specifically the senate, but it does give you a sense for, for what the the the president and the administration are requesting. I think some of the the the brighter news, in terms of the the budget for next year, the the administration does seem to be getting back to invest in investment in information technology. Modernization is a big component of the, the president's policies as well as investment in AI and automation. You can see that showing up here with some pretty steep increases in certain agencies, one of the requests from the administration was accelerating the the patient record system in the VA so you can see a pretty steep increase in, Department of Veterans Affairs to support that you could also see steep increases in the Department of Justice, Department of State, which ironically is facing cuts in aggregate, but increases in their IT spend. And then you can see some of the other agencies as sort of plus and minus. But overall, about a 11% increase, versus prior year from the '27 budget versus the '26 budget. So this would be, I think, good news for many of you in the IT and professional services sector that, that this tends to bring a lift to, and that's, you know, one of the areas that we had on the IT sector last year was flat and professional services declined. So, hopefully, we're we're seeing that reverse here as we go into the the second year of the administration and the third year of our budgeting process with 2027. I wanted to try to make sense of all the funding actions that are taking place or have taken place, and I'll start on the far left. We had the the first reconciliation bill, which was really the one big beautiful bill. This was, for a combination of defense spending and ICE and CBP spending. One thing to just to note here is the, the administration, based on the army's defense plan, delivered in February, basically, is is accelerating the the spend from what was originally projected by this. They're they're pulling forward, about a $151,000,000,000 versus the 113 they thought they were gonna originally spend. So that's money that will be pulled forward into f y twenty twenty six. So they're really leaning into this to try to accelerate, some of the initiatives. This was largely the the ship building, the investment in the next, joint strike fighter, the next fighter, plane following the f 35, as well as some of the investments in the, in the Golden Dome. So we expect for those of you who are, you know, in that addressable market, and I know there's not a ton of you, this would be all representing accelerated spend that we expect, versus what the original baselines were. We then last week, we got the final DHS appropriations bill. This this funded essentially all elements of DHS except for ICE and CBP. Those are gonna be, funded separately under both the one big beautiful bill and continuing appropriations there and this second reconciliation bill, which I'll talk about in just a moment. So we do officially have appropriations for fiscal year 2026 finally wrapped up, and no more shutdown for those agencies. And there's money available for the ones that congress did not specifically appropriate through, through previous, previously enacted reconciliation of rec legislation. The reconciliation two, this is what was teed up as what ended what could end up being two separate bills or one single bill. It's it's not yet determined. Basically, what the, administration and congress are working on now is one part is that $350,000,000,000 defense, funding reconciliation. This would be for fiscal year 2027. Some port portions of it are identified as money that would be used for later years. We're gonna talk more about that reconciliation bill in just a moment. So that's part of it is the DOD piece of 350,000,000,000. Then there's another reconciliation bill, which is basically, the Republican Party in congress not wanting to have sort of an annual big debate about ICE and CBP spending. So what they're looking to do is essentially fund those agencies through a three and a half year, reconciliation piece of legislation that would take them out of the appropriations process. So it would essentially allow congress to pass with simple majority a, a a a, we'll say, equivalent of funding for ICE and CBP that will last them through the current administration. And so that's gonna be the devil in the details is how does that actually come out in the form of one reconciliation bill that sort of is is sort of passed or not passed or separating them into two where you could see the defense one getting passed and the ICPP one maybe having more challenges. But that's, you know, that's what we have to wait for in this legislate legislative process is to see how this, this, this manifests in in legislation. I think, you know, the one thing to keep in mind is, obviously, the Republican party wants to get this done before, long before the midterms because, that's when they might lose control over the, one element of the house or the senate. We don't know. Could be one, could be the other, could be both. We it's you know, obviously, the midterms are a high risk thing, and so the Republican Party wants to try to get these initiatives done as quickly as as quickly as possible. And then the last leg that I did wanna mention is the Iran, supplemental. We heard, a a number mentioned. I think it was just about a week ago that there was a $25,000,000,000 cost to date from, the Pentagon CFO on what the Iran military actions have cost, but there were also previous reports about a request for 80 to $100,000,000,000 in supplementals. So we don't really know what form that supplemental request is gonna take. We just know it's coming. It will largely be for munitions, you know, primarily backfilling the the munitions that were used, the missiles, the, the the drones, and all the things that were used to shoot down drones that were coming in as well. So think about all the the weaponry and and, munitions that were used having to get backstopped. I know that's not necessarily addressable by the typical professional services or IT services company, so I don't know that the, Iran supplemental will will be a lot of addressable market for many in the market. It will certainly be for many of you in the aerospace defense segment. Just wanted to try to bring a little bit of order to, some of the the, funding actions that are taking place and have taken place that are outside the typical appropriations process. But just to put a bow on this slide, we finished appropriations for 2026. 2027, they'll they'll continue to be an appropriation, you know, process for the the base discretionary appropriations, but then look for one or two, actually, probably three, potentially, reconciliation bills plus the Iran supplemental and and exactly how that comes forward is is TBD. But those two to three additional actions will need to get addressed. That would include the $350,000,000,000 for defense, the $70,000,000,000 for ICE and CBP for funding for the remaining, the Trump administration, and then whatever gets requested for the Iran supplemental as well. Let's spend just a couple more minutes on that defense reconciliation bill. They did put out, a, a a plan of spend of spending from the controller of the defense on that $350,000,000,000. You can see how that's sort of laid out here on the left. Obviously, a lot of it's for next gen tech and autonomy, so think about this as, UAVs and, automated sensors and detection capabilities, so surveillance, lots of technology that links, I think, AI sensors, radar to, targeting missiles and weaponry to to shoot down inbound threats. Obviously, there's a a heavy focus on the defense industrial base. This would include, you know, shipbuilding. Critical minerals is another topic that's come up. Many of you have probably seen that China has a corner on, many of the precious materials and critical minerals that go into some of the, the defense weapon systems that are needed, and we we don't have, great alternatives for some of the supplies of those critical, minerals. So there's a lot of emphasis by the administration to address that issue, which is not a quick fix. These are mining operations as well as processing capabilities to to separate the the chemical composition of these minerals, and to create these, these capabilities in in a manufactured process. So lots of lots of challenge with doing that. Munitions is pretty obvious. This is, you know, replacing a lot of the the the capabilities that are being used both in Iran, in Gaza, in Israel, as well as, in Ukraine. So no shortage of places that the munitions are being deployed and and plenty of need to to build up the manufacturing capacity there. Air superiority, so continued investment in f 35 as as well as the next round that was planned, and that was gonna be used for the one big beautiful bill. And then there's some money that's getting allocated across, the various services that you can see how it will sort of be divided. A lot for each of the different branches to, to identify and participate in. And, obviously, this represents a significant funding opportunity for companies in in all segments, not just the the sort of traditional aerospace defense companies, though I I would say it has the best opportunities there given the nature of the investments. There's there's lots of opportunity for a lot of different types of companies to participate in this as well. This is where I think a lot of companies are thinking about the pivot. Like, how can I get part of these capabilities with my existing capabilities? So a lot of companies are doing that rack and stack of their current corporate capabilities to see how they map to some of these higher growth areas and see if there's opportunity for them to get after some of those other segments. I did wanna talk about some of the, the latest acquisition reforms and where they stand. We we've talked about the FAR overhaul and a number of updates. I think the the key thing to note here is, you know, we've we've sort of finished phase one, which is basically rewriting all of the far parts, and many agencies have adopted some of these far parts and what they call class deviations, which means that, for those of you, who are doing business in certain agencies, you might be navigating different, FAR parts or versions of the FAR, depending on what agency has adopted what, what FAR. If they're using the original FAR, then they're still on the original FAR. If they've implemented one of these class deviations, your newer contracts might be using this newer revised streamline language. The next major phase is moving into, a formal rule making process, and adopting them as final far amendments. That will be, you know, underway over time. But these these class deviations have been adopted by many agencies, so you are, you know, juggling with the fact that, depending on which agency you're doing business in, you might be navigating different far clauses that you have to comply with. So that's the big challenge for a lot of you in the in the market. GSA also, has rolled out a new AI clause on the schedule that they're looking to implement. This is American AI Systems is sort of the branding of it, and the idea here is that, we want The US AI to be adopted in the in the provisions. There's also some requirements around, data inputs and outputs and who owns it and, contractors barred from using government data to train on models. There's so certain provisions around ownership. There's also some provisions around liability. So who's liable for, the the compliance of these requirements? If you're a prime, it's you, and you'll need to pass these down to your subs to make sure that they're compliant as well. And then, you know, while this is really gonna be targeted initially at schedules, it's it's usually pretty common that what starts in the schedule will often find its way into, into the far over time. So that's something to keep an eye on. And then this, this country of origin or made in The USA, this was an executive order that came out that's sort of an extension of, of work that's been started under the, the administration, which is trying to drive, the use of US made products as much as possible. It does create, sort of an interesting division between, rules from the FTC, the Federal Trade Commission, versus this this sort of what's, you know, US, composite materials and products bought by the US government and the Buy America Act. So that's something just to keep in mind, is this this slightly different definition that's now developed as we have one for the, the BAA and one that that might be a more strict interpretation from the FTC. And, you know, the implication of this is if you are not following this and you, you are found, like, in violation of it as a prime, even if it's one of your subs that do it, you could, find yourself, facing some FCA cases, which could be a challenge, which is, stuck for the name of the FCA at the moment. But, basically, it's, you know, being being found in violation of your contract, which could be leading you to pay some penalties. Alright. The other topic I wanted to talk about was the eight a program. There's been a lot going on with the eight a program, obviously, with the, the administration's, anti DEI related initiatives. The eight a program has been sort of called into question. Is is it a DEI program? Sort of depends on your perspective. I mean, there's obviously, this the eight a program, which has been historically, provided to socially disadvantaged businesses and minority owned businesses, but it also has, elements of it for the tribally owned and Alaska Native corporations and the Native Hawaiian owned organizations as well, which are are corporate entities, owned by, either tribes or Alaska Native corporations that operate to, support their their own constituent groups. I think what we've seen is is a number of steps the administration has taken. First of all, obviously, there's been a lot of focus on auditing of these, these eight companies to make sure that they're complying with the financial obligations and requirements of the program. So, the the SBA has has put out calls for for a lot of data, financial data from the companies that are on the program, and those companies that haven't been responsive have found themselves suspended. I think some have been asked to come back in based on them subsequently responding, And then the, the defense department very, very specifically said they're going to be doing an audit of the eight a program, especially for the largest awards, in particular, sole source awards. So, clearly, there's a lot of, a focus on is the the spending on the program, you know, on the up and up. There's been a lot of, accusations of fraud, waste, and abuse under the program, and so they're they're trying to make sure that is not happening, I think. As you might expect, this has cooled the waters for new entrants. I think there's two things driving that. One, the the administration is essentially, undid what the the Biden administration allowed, which was for companies to submit their, their social narratives articulating their social disadvantage for those that, did not qualify or did not submit something previously so that was the way the the Biden administration was allowing these existing eight a companies to navigate the social disadvantage requirement, based on the Ultima, court decision. So by taking that away, they're essentially saying companies need to figure out how to find their way into the program without that without that narrative and through their own, sort of application process. This has led to not just a decline in the number of sort of stand alone eight a companies, but also the ANC, tribal, and NHOs have also dramatically reduced. You can see here in the blue is the number of new entrants into the program as companies, and then there's the joint ventures where you might have two eight a's form a joint venture, and and those have continued to be added. But, again, keep in mind that's a combination of two eight a's that exist to form a joint venture versus, a new a net new entrant or company entering the market. You know, I guess I would say just, to comment on this, you know, the eight a program is written into statute and the administration is not looking to, to undo the the statutory requirements, but they're essentially sort of creating challenges for the program with the audit work, so that the companies that are in it are are challenged to sort of stay in the program and respond and be proactive in responding to the request to to remain in the program. So I think this will sort of automatically kick out dormant players that that aren't, probably actively participating anyway. But those of you who are really dependent on the program, are you gonna have to be real intentional about complying with these audit requirements and requests to make sure that you maintain your status? We have still still seen procurements coming out. They're still using the eight a set aside. I think the the eight a sole source is likely to to get less used over time as it seems to be really in the crosshairs as the sole source awards. They really want the, the competition, to be the competitive element to be there. And then I think we're seeing the administration sort of starve resources on the new entrance side or make the bar to become a new entrance so high that it really discourages new applicants. You know, I think the the question on everybody's minds is this sort of representing the the death of the program or more of just a a a decline in in sort of, we'll just say, pause on the program in some respects until a new administration comes in. And I I tend to think it's the latter. I don't think it's gonna be, eliminated from statute. I don't see congress taking action to eliminate the program, which means that the next administration, whatever it might be and whatever its preferences around, sort of how they think about this program and DEI initiatives will shape the future of the program beyond the current administration. But but clearly, under the current administration, it's, you know, a much more challenging environment for the eight program. In particular, those that might wanna join the program, I think, are gonna have a challenge in a very high bar. We we haven't seen any new entrants other than joint ventures in 2026. So just gives you a sense for, sort of the opportunity to join the program right now. Alright. Did wanna talk about some of the recent, executive actions as well. The first, the new DEI clause that's required in federal contracts. This is addressing DEI discrimination by federal contractors. This new clause will apply to contracts that are above $15,000, and it basically prohibits specifically just racial and ethnic. It doesn't say anything about gender or sexual orientation or anything like that. This is specifically racial and ethnic disparate treatment, by companies in their hiring practices and their subcontracting practices. And, primes must also report subcontractor violations. So you're you're basically on the hook for your subs as well, which means this is a clause that that primes are gonna want to flow down. The penalties for violating this, that's the FCA term. Sorry. Sorry. I couldn't remember earlier. The false claims act, which could lead to, suspension, debarment, or termination if you're found in violation of this clause. So that's definitely something to pay attention to as this, this gets formalized and rolled out. We did also see the, the administration rolling out a new, I think it was a memorandum from the OMB called reinforcing transparency, accountability, and oversight of federal technology. This basically is, requiring those agencies that, are under the CFO act, which is largely the main departments and agencies. I do believe it excludes the Department of Defense, but don't hold me to that. Those CIOs would be required to report on a monthly basis of all new IT contracts that they approve. So new IT contracts, will will be reported, and then those contracts also would require the vendors to disclose the utilization and pricing data that's shareable across agencies. So this is a big deal for, for those of you who might have disparate pricing across agencies. They're gonna be basically looking to implement what GSA had been using on its vehicles, government wide, which is the sharing of your pricing data, and utilization across, across agencies. So other agencies can see that that special price you might have given to one agency that you didn't offer to them and and use it as negotiating leverage as the potential application of this. That was just rolled out on March 31. On April 17, so this is just a couple weeks ago, there was another memorandum called the increasing the acquisition of commercial products and services. This basically requires that senior procurement executives must approve any acquisitions that are, involving non commercial implementation. So if you're you're building something that's very specific, that's not commercially available, or not using commercial solutions, then you are going to be, on the, you know, on the cutting edge of this in terms of the senior procurement officials gonna have to approve that acquisition. So what this is really telling you is you really wanna position your solutions as commercial solutions or built on commercial solutions versus homegrown capabilities. The OMB cited in this is a $130,000,000,000 in f y twenty four of noncommercial services. I'm not exactly sure. There is a flag for, for whether it's commercial, but I don't know how reliable it is. But, anyway, that identifies professional support in IT and facilities that are, sort of in the crosshairs of this, and they're trying to shift that to commercial products over time. So definitely something to keep in mind as you're solutioning your capabilities for government requirements that you want them to be as, commercially sounding and available and resourced as possible. And then the last one that I I know we're gonna spend a little bit more time on because this applies to a lot of you, especially in the, IT, aerospace, defense, and professional services market. There was a new executive order that came out just last week, called promoting efficiency, accountability, and performance in federal contracting. The the big headline here is it basically makes fixed price the default for federal contracts. They are trying to, reduce the amount of cost reimbursement, so cost plus fixed fee, cost plus award fee, time and materials, labor hour contracts. They're trying to really reduce the amount of usage of those types of contracts, and part of that will be requiring written justification, and an agency head approval for various thresholds. For most agencies, it's 10,000,000, but there are higher thresholds for DHS, NASA, and Defense, which do a large amount of those types of contracts, and they tend to be bigger. They did carve out things like r and d, emergency requirements, so disaster relief requirements could be accelerated with this type of thing as a a approved exception, and they also highlighted major systems purchases. So think about major weapon systems as well. So it's not all spending. It's really they're targeting, certain areas like an IT and professional services where they they might have these, these cost plus or cost reimbursement contracts out of just, you know, not wanting to spend the time on the initial requirements for expediency or for the challenge that comes with creating those kinds of detailed specific requirements in order to award a fixed price contract. So let's talk more about this one because I know many of our Costpoint customers, rely heavily on cost reimbursement contracts. It's the the foundation of one element of why, many companies use Costpoint, which is our, cost accounting standards, compliance, and the ability to, comply with a lot of the requirements that the auditors look look for in in sort of the reports that they look at out of DCAA, DCMA. I wanted to give a picture of cost reimbursement spending for fiscal year twenty twenty five. We did try to break it into the different industry segments. So aerospace and defense, I think a large portion of that based on it being based on large systems buys will will be excluded. IT, I expect, and professional services further down the list will be areas that get, some attention. I think, historically, some of the large systems development contracts have been cost reimbursement because they, they sort of have a really hard time defining the requirements upfront and, in a in a sort of flexible way that can be evolved over the course of a five to ten year contract. So, so those are areas I think that that are gonna be the the the hot spot for attention where agencies are gonna be challenged to, can you pivot that work? Small business is a relatively small share of this, only 13%. I think that's, you know, largely an indication of a lot of these, large aerospace defense contracts and r and d projects are really not that addressable by, the small business community. So it tends to be a smaller, piece, though it is concentrated in IT and professional services. You can see those are the largest chunks of small business are in those two segments, which are also probably gonna be the segments that the, the administration and OMB is focused on most to try to try to reduce. There's a a challenge to do a ninety day review window for agencies for non fixed price contracts. So, they're looking to review these contracts and provide guidance to agencies around how they wanna address them from an implementation point of view. And then, you know, we expect that over time, this will shift. That that fixed price really shifts the risk to contractors, but also potentially opens up some some increased profitability opportunities. I think as you think about the risk and profitability, typically, when the government says we're gonna do a cost plus contract, they, you know, they expect to see a certain profit margin from you, and they will actually look at that to understand how you're you're profiting off their their work through their, their their cost accounting. In a a fixed price world, you get a little bit more latitude to to generate profitability that's, not exactly exposed to them and also gives you a little more ability. Of course, you're gonna charge more if you're taking on more risk. I don't always know know that the government understands that when they're looking at pricing, but but, clearly, that's the challenge is if you're asked to take on risk, you're usually gonna, hedge your bets and you're gonna increase your, your margins a bit also to protect yourself in case there's some things that show up that you don't expect that you need to eat in terms of fixed price risk. So I'll just go into a little bit more detail about what the, the executive order actually does in this this fixed price as a default. Again, fixed price becomes the default contract type for federal procurement. Any non fixed price contracts requires a contract officer justification. If it's above a certain threshold of spend, as you can see on the right hand side, it actually requires, the agency head to approve it. So you you need the secretary of DHS to approve a, a cost reimbursement contract above 25,000,000. Agencies are asked to review their 10 largest non fixed price contracts. I would assume this means, non fixed price contracts and segments that are not, already excluded like r and d and some of the the weapon systems purchases to identify, those contracts that can be shifted to fixed price. They put a rather ambitious target on this of, ninety days. I mean, just think about the challenge there of of taking a, you know, potentially a billion dollar contract that is set up as a cost plus contract and trying to restructure it to be a fixed price contract and all the thought and effort that needs to go into defining that upfront, in such a way that you're sufficiently describing the requirements. You've accounted for things that might change in terms of technology, policies, etcetera, over time, especially when those contracts might be five, ten years long. It's a pretty pretty tall ask, I think, to change that kind of contract to that magnitude. Agencies are also gonna be, required to provide semi annual reports to OMB on their non fixed price contract used, though, frankly, you can get that data directly from the Federal Procurement Data System. So it'll be interesting to see what those reports look like. And then then again, I mentioned some of these exemption exemptions like emergency response, r and d, and preproduction, some of the major systems acquisition. You know, I would say this is not like a new policy. Right? I mean, I've I've been in the market for about thirty years, and I've seen many administrations, have as part of their, their acquisition policies as well as their their management agenda to, you you know, drive agencies to use more fixed price work. It's not been, a lack of desire and and, you know, sort of policy to do this. The real challenge I say that that this does not address, like many other policies, is not addressed, which is the biggest challenge, which is the challenge is always the same. It's not addressing, you know, here just agencies not wanting to do it. The challenge is how you get agencies to be able to sufficiently scope upfront these highly unique, highly complex requirements that evolve significantly over the life of a five to ten year contract. I think that's the challenge that agencies have always had in awarding these kind kinds of contracts, and that can elongate the pre award acquisition process, extensively. I mean, it's it's agencies doing a lot more work and the requirements gathering because at the end of the day, they need somebody to be able to submit a fixed price. As a as a company, you're not gonna submit a fixed price on something you don't feel like you can control the risk, and it's not sufficiently defined. So there's there's this very significant challenge for some of these large, complex, unique requirements that only the government does. You know, think about Social Security systems, IRS tax systems, obviously, weapon systems. Like, nobody else in the world does those types of things in the scale that the US government does and defining them upfront and having it last for a lengthy contract is a a very tall order indeed. In terms of magnitude of exposure, and we talked about the 250 ish billion dollars, that represents about a third of, of federal contracting, so it is a significant portion. About a $110,000,000,000 dollars of that is in that category of aerospace defense and r and d, so that would be likely excluded right off the top. It sort of leaves you with, you know, a bit over half. I mentioned already the categories that are likely gonna be targeted, IT services and systems development contracts, obviously, professional services. They specifically called out, consulting as a as an area. Operations and maintenance is gonna be an interesting one. If you think about a lot of the, the national lab operations for, for the Department of Energy doing nuclear waste storage and nuclear, sort of weapons and and power facilities, you know, I sort of expect that's gonna continue to be cost plus. It's a very difficult thing to to scope as a fixed price. So I I sort of expect that to to get ignored and set aside. And then, you know, as we mentioned, some of the carve outs around inner energy labs, aerospace defense systems, those are less likely to be addressed through this through this particular piece of, of legislation. I'm sorry. Regulation from the administration. So like I said, a lot going on. We are gonna go ahead and jump into q and a. So I hope you all have some some questions stored up, and we do have some presubmitted questions that I'm gonna take on as well. Let me just bounce to those while we're doing this. We also have some, some poll questions that we're gonna be, putting up there for you to answer. So I'm gonna go ahead and let, let Leslie go ahead and tee those up as I get to, the q and a. Let me jump to some of the questions that are presubmitted. Here's one. Do we expect set asides for small businesses to increase under the current administration? This is an interesting question. I think as you think about, where the administration and some of the regulations that we're seeing evolve under the far overhaul, I would say there's there's sort of a gravitation to a preference for small business set aside versus using some of the socioeconomic categories. Now agencies still have a lot of latitude to do that, and there are still requirements that agencies have for different functions. For example, I I would expect the Department of Veterans Affairs is gonna continue to heavily use the, small disadvantaged, I'm sorry, the small disadvantaged, disabled veteran program. I think I'm screwing up that acronym. Excuse me for that. But, yeah, the SDVO program, I think, is gonna continue to get strong use by by the VA. I do think the eight a program was we just saw a program the other day that was announced as an eight a set aside. It's a pretty large program. So there's still gonna be some some disparity in in usage of all the different socioeconomic programs, but I would say the one that seems poised to grow the most is the small business set aside just because it's sort of the safe place to go if an agency is looking to avoid any scrutiny from a DEI point of view. And that seems to be sort of written into some of the policies as well. Here's another question. Discuss which agencies are moving their procurements to GSA and GWAC schedules. This is hard to answer generically. I would say, you know, the best place to go if you're, obviously, if you're a GovWind customer is in our agency profiles. You can actually see, within each agency what contract vehicles they lean heavy on. I would say some of the, the agencies that that have relatively small amounts of contracting such as Department of Education, Housing and Urban Development, they tend to use, GSA vehicles and specifically GSA schedules heavily. They only use the, the GWACs when they have relatively large requirements. But then you go into some of the larger agencies, they'll tend to use like, I I know the military uses OASIS quite a bit, but they also have many of their own vehicles as well. And and I think it'll be interesting to see to what extent, especially that army, navy, and the military agencies as well as DHS, do they end up gravitating to GSA vehicles, or do they keep their own? Like, one of the examples is the army maps program, which continues to be procured, and and there's some in industry who question why aren't they using existing GWACs versus the, versus the, you know, setting up a new vehicle. So I would take this as an agency by agency assessment. If you have, you know, a certain set of customers, I would definitely encourage you to look at their inventory of of vehicles and see how that evolved over the last year to to sort of take a a a read on how that's evolving. There's a question. It's sort of a broad question based on the funding signals in '26 and outlook for '27. Where are you seeing the most structural advantage in federal procurement? Is it centralized vehicles, certain small business categories, open competition? And I'll I'll circle back to the the big pivot. I mean, clearly, there is a desire by the administration to increase spending dramatically in DHS and DOD. I would say next level down, law enforcement agencies, we saw the Department of Justice get a request for a steep increase as well as, obviously, Department of Veterans Affairs. Those seem to be the safe harbors right now, and in some cases, even, you know, a huge acceleration of spend that represents a big opportunity. And for those of you that are sort of stranded in some agencies that are not part of the, you know, administration policies and if anything are part of the administration's desire to cut costs in certain agencies, then I would really encourage you to take a honest look at your pipeline, the strength of your pipeline, how diversified it is, and be working on your diversification plan for how you're gonna branch out into some of these other agencies. We have a series of webinars coming up that's gonna be speaking about these topics as well as covering some of the opportunities in specific agencies like in the military that I would encourage you to take advantage of. I think those are coming out over the course of, this spring and summer. And, those are webinars that obviously are free of charge. It'd be a great opportunity for you to get deep into any one of these agencies to understand the the pattern of spending that we expect. Obviously, there's also a question here on the CMMC rollout. I would say the the CMMC rollout is, strong and in earnest. I think based on our re most recent clarity study, something like 50 some percent of companies expected them to have to get CMMC at some level to to be able to, meet the requirements of their customers, which I think reflects, you know, the the half of our customers and half of the industry out there that's doing business in the defense market. So any of you that are in the defense market, I think you you have to assume that CMMC applies to you, and it might even start applying to some of the commercial agencies as well as we see that started to be get taken up by, by companies or agencies like DHS, for example, and GSA. There's a question about, does the eight a program review Alaska Native corporations and other designated tribals? I think it does. I think they're looking at the largest contracts. And when they said they're looking at the largest contracts, they didn't say except for the ones held by Alaska Native corporations or tribally owned corporations. So I think you should assume that the Department of Defense's, scrutiny and review of the eight program is gonna include their largest eight a contracts, not just the ones held by, individual owners. And with that, Leslie, I think that's probably the questions we can take for today. So I'm gonna turn it back over to you to wrap us up. Thanks, everyone. Alright. Well, thanks very much, Kevin. Thanks everyone for joining us today. We do want to ask if you could, take a moment to fill out our survey, which you'll be seeing here momentarily. Just a quick reminder that you'll also be receiving a recording of today's webinar within twenty four hours, and we remind you to check back at deltech.com for further webinars and additional events just like these. So thanks everyone for joining us. Thanks, Kevin, and have a great afternoon.