Name: GovCon Market Conditions Q3: Market Signals for FY2027
Uploaded: 2026-09-22T16:30:46.671Z
Duration: 59 min 56 s
Description: GovCon Market Conditions Q3: Market Signals for FY2027

Transcript for "GovCon Market Conditions Q3: Market Signals for FY2027": Hello, everyone, and thank you for joining us for today's webinar, GovCon Market Conditions q three twenty twenty six, what the fiscal year 2026 closeout tells you about 2027. Before we get underway today, just a few quick administrative items that, we'd like to note. For the best experience today, please use Google Chrome. If you do have any questions throughout today's presentation, you can go ahead and submit them at any time. We will be addressing as many questions as we can at the conclusion of today's webinar. And then any questions that are left unanswered, we will try to address individually offline as appropriate following today's presentation. If you do submit a question today, we will use the contact information that you signed up for the, webinar with to contact you if we do respond to your question, post webinar. Just keep that in mind. We are also, making today's slides available to you, so you'll find them in the documents tab. You can go ahead and grab those slides and download them, in that right hand section on your screen. We're also making available to you a few other fantastic resources, so be sure to check those out as well, including our 2026 clarity study, where we surveyed over 900 government contractors for some great trends and insights into what is happening in the industry. You won't wanna miss that, so make sure you, grab that while you are getting today's slides. You will also be receiving a on demand recording of today's webinar, and that will be sent out 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 thrilled to have with us today, Denise Peterson. Denise is our vice president of market analysis here at Deltek. She has a wealth of knowledge knowledge on the industry and areas that are most important to contractors today. So welcome, Denise. We're happy to have you with us today. And with that, I will turn it over to you. Alright. Thank you, Leslie. Hello everybody. Thanks again for joining us this morning. I wanted to well, first of all, anyone doesn't know me. I head up, the government market analysis, part of of Deltek, and so our job is to really keep up with what's going on with budget spending policy and all of that. So, what I'll be sharing with you today is kind of, a very high level skim of everything that's that's gone on in the last quarter. So, the core question I'm hoping to answer today actually is what does FY26 closeout look like, and what does that tell us about how to get ready for f y twenty seven? Because a lot happened this year on the spending side, on the budget side, on the policy side, and I want wanna walk through all of that and and leave you with some thoughts on how to move forward. So here's how we're gonna spend our time together. We'll start with a quick look at f y twenty six spending, so basically the road so far. I've done my best to kind of put together some estimates for how I think this last quarter is gonna shake out. Then we'll turn to '27 budget outlook, and then we'll spend the bulk of our time on kind of the policy watch. So there's some big rocks there that, that I wanna talk about, like, within DOD and small business stuff and a few other actions to to keep an eye on. Then we'll bring it all together in the section, preparing for f y twenty seven. That's really hard of what I wanna walk want you to walk away with today, and then we'll close out. I've done my best to try to, time this, so there's plenty of time at the end for questions. So make sure you you get those ready. Okay. So let's start by grounding ourselves over f y twenty six. Looks like it's landing. So let's take a look at quarterly spending. There's a pretty decent consistency in quarterly spending behavior, which I'll show you shortly. So looking at what's already been reported and historical spending patterns helps us kind of create an estimate for what q four, which we know is consistently the biggest quarter. Right? So, also note there's a ninety day delay in DOB reporting. So those numbers, when I share those will likely rise a bit. But if you look at the pattern bars here, q one through q three reflect actual reported spending as of last week. So there's gonna be a little bit more spending there. And on average, about 35% of annual contract spend, happens in the fourth quarter. So with that in mind, we can kinda see q four spend, potentially exceeding $350,000,000,000. Now, of course, some of that q four boost is probably tied to the one big beautiful bill at funding, which, by the way, DOD has said, that they probably will exhaust all of that. What was five year funding at the end of this fiscal year? And if final spending settles around these levels, we'd be looking at, potentially an annual spend of over $950,000,000,000 And just to put that into perspective, FY '25, landed around $814,000,000,000. So, you know, with all the extra supplemental funding, we're in an integrated position, spending wise for FY '26. Okay. So now let's put that same picture into civilian and defense. So defense's q four estimate comes in around 210,000,000,000 against civilians, 149,000,000,000. So defense isn't just a bigger piece of the pie. It's also growing faster, and that's gonna matter in a few minutes when we get to f y twenty seven, budget numbers because you'll see that same lane, obviously, towards defense spending, which is we know is a priority in this administration. But that said, I don't wanna undersell the civilian number. 149,000,000,000 is up meaningfully from a 113,000,000,000 in FY twenty four's fourth quarter, which would be a solid kind of double digit jump in its own right. But again, that probably would not be evenly distributed across departments. We know from One Big Beautiful Bill budgets and policy that the administration's priority departments are where the growth would be. Right, so that's DHS, Energy, Justice, Transportation for just to give you a few examples there. Okay, so here's a little bit of data to try to validate that, with several weeks of reporting the goal, FY '26 spending for, some of the administration's prior agencies are already exceeding FY '25, right, and will likely end up even higher once the books are closed. And, by the way, when I say books are closed, that means, you know, kind of the time wise that agencies can go back and revise numbers whenever they want and as far back as they want. Those are typically small changes, but these numbers could actually change. But just as you can see, you know, the spending is what we expected aligning with the administration's, priority departments, which would, you know, be all of DOD, again, Justice, DHS, etcetera, that that had some pretty significant funding in the One Big Beautiful bill and in the second reconciliation bill that would be mainly for DHS. Okay, so I also wanted to look at this by market. I did my best to get a sense of what's going on in the in the top markets, meaning where the most spending goes across the Gulf Con. Obviously, defense and aerospace is still the largest market in absolute terms, at a potential 83,000,000,000 for q four. IT, professional services, and r and d all have pretty solid showings at 52, 41, and 32,000,000,000, respectively. And clearly, AC jumps off the page. So, of course, I had to curiosity, killed the analyst, so I have to to deep dive into this and and take a look back at q one and to q three for a few of the previous years. So what's interesting, in a typical year combined, q one to q three AEC spend is typically about 25,000,000,000 on average. That's all those three quarters combined. But in FY '26, q two and q three show about 24,000,000,000 each, so very much above what the historical averages are. And historically, over half of spending in AAC happened in q four. So, like, last year, I believe it was about 50%. This year's looking like it might be around 57%. So using the same estimating approach in the previous slides, put that FY twenty six q four estimate pretty high. So that's why we're seeing that spike there to 79,000,000,000. And, again, likely due to, One Big Beautiful bill, there's still some remaining funding from the infrastructure bill as well. But I just want to point out the reasoning here. So, keep this AC number in the back of your mind. It's gonna make a lot of sense when we look at the military construction line in the FY twenty seven budget request, which I'll I'll cover here in a minute. Alright. So that's my segue. We're gonna shift gears. So that's what already happened. What we're estimating is going to happen closing out, through the end of the month, basically, through the the end of fiscal year. So let's let's take a look now, ahead at at budget. Alright. So in case you missed it, and it wouldn't very much be easy to miss it, we're already under a continuing resolution until December 11. That already passed. The President signed it. The House has already left town. I believe the Senate is still in session until October 1, I wanna say. So that kind of went under the radar. But again, we're in a midterm year. It makes sense that they don't wanna get into any kind of perception issues, what budgets they support during the midterm season. So one of the few areas of bipartisan agreement was they just didn't wanna deal with the appropriations until after the midterm. Now that being said, I always track bill progress to just get a sense of how much difference there is in between the chambers just to help pinpoint where conflicts may arise during negotiations. But the senate threw a monkey wrench into that, because they haven't gotten a single bill out of any subcommittee. Now the senate is usually way behind the house anyway. It it it appropriations start, in the house, but nothing has come out of subcommittee. So, you know, interesting midterm election year. So mid December is gonna be pretty interesting post election and after the CR expires. Well, we can see that the House has already passed the agriculture bill and the military construction VA bill. So when we look at the won't be beautiful bill act and remaining funding from the infrastructure bill, those AEC numbers I showed you before start to make a little bit more sense. And with the Milcon VA bill being one of the few that aren't targeted for cuts, FY '27 looks pretty healthy as well. On the other end, the biggest cuts are in the transportation and HUD bill down if if the senate gets in line, almost $11,000,000,000 and then the labor, HHS, and education bill down 5,600,000,000. So let's talk a little bit more about potential resolutions and shutdowns because I I hopefully this site puts a lot of things into perspective, because whenever thing the machine is not working as it's, supposed to, you know, there are concerns about what does this mean for contract spending. So we can talk a little bit about that. First of all, Congress has not passed the bill appropriations on time since 1997. So just think about that. So CRs are now they're the feature, not the bug. Right? They're pretty predictable. What's more unpredictable can be how many CRs we may see in a given year. The average over the past decade or so has been about three CRs per year. And let's hope we don't break the '19 or the 2001 record. There were 21, CRs in that year. The other thing we have to think about is like how long each Cr. Will be right because sometimes, they are optimistic and think we just need another week, and then we just need one more week, and then one more week. And so you get a bunch of crs Sometimes it's like, hey, let's give us plenty of cushioning so you have longer term CR. So, you know, usually, CRs typically don't go past q one. But now we're already lined up for seventy one days of an FY '27 continuing resolution. And so we shouldn't be surprised if there are multiple. So the natural question is given how common this is, what do CRs and shutdowns actually do to spending? So let's get into that next. And let me just say, I'm not including shutdowns because I've heard anything about shutdown, but everyone should always be prepared for a shutdown, especially, in this administration and the appetite. We've just had the longest one in history, so that's why this is included here. So the answer, is basically not much historically in terms of the impact. CRs and even shutdowns have had a pretty modest impact on total and quarterly contract spending over time. As I just said, f y twenty six included the longest shutdown on record at about forty three days, and contract spending still grew for that year. Elections and changes in administrations typically show the same pattern. Historically, they don't move the needle that much. Even things like, you know, what happened with DOGE last year, agency closures, and workforce reduction didn't shape that pattern last year, but I do think we can't get too cocky about this. Right? Because the takeaway is, you know, you still have to follow the money. So things ultimately, even after a shutdown, kind of catch up, but things obviously shift. Right? There's a bottlenecking that happens. So, but, you know, another takeaway is just don't let any CR headlines kind of drive any kind of pipeline anxiety on their own. You just have to kind of look at what it means for, you know, what the appropriations mean, what's the actual funding feasibility, and the timeline. But the data tells us obligations happen no matter what. The government's biggest customer in the world. They have to spend. It's just when, and it may be clustered spending, maybe cluster a little different than you you might expect. Okay. So I want to take a look at a few potential funding streams, at potentially at play in FY twenty seven. So first, the FY twenty seven discretionary, budget request was about 1,100,000,000,000 for defense and 785,400,000,000 for civilian. The original request when, you added in, mandatory spending, there's I'll I'll get to that in a second, but this is the base discretionary, budget request. To the surprise of no one, the DoD request was a healthy increase over 9% while the civilian request was down 5.6%. Now the DOD requests, like I mentioned, also included this additional mandatory funding about $350,000,000,000 that the administration wanted to obtain via a third reconciliation bill. That does not look promising. And I'll get to that in a second. The second funding stream is the one big beautiful bill actor, h r one. There was about $400,000,000,000 in enacted contractor addressable funding, that could be obligated between FY '25 and FY '29. Now, like I mentioned, DOD has blown through the majority of that funding just in FY twenty six alone, so that ship was mostly sailed. But some good agency recipients probably still have some funding for fy twenty seven. So the third funding stream is the potentially really depends on how Congress shakes out. This is the third reconciliation bill of reconciliation three point o. So the first one was the one big beautiful bill. The second one was specifically to fund ICE and CBP, and, the third one is the proposed one that the administration asked for three fifty billion. Congress issued some budget resolutions to start that process. There's two things to note here, though. For look under the armed services number. That's $60,000,000,000 that the House and the Senate both agreed on, which, is nowhere near $350,000,000,000 I think that request is kind of out the window. The second thing is that Senate leadership has said they don't have the votes right now to move this along. This is something that we'll need to watch for after the midterms, not just the amounts but its existence at all if leadership changes after the election. And then lastly, also in that it might go away category, is a potential supplemental funding request. So the administration requested supplemental funding in it for f y twenty six. Didn't get that. I could see them coming back to submit that again for f y twenty seven. And as you can see, a big chunk of this was really to kind of, augment or fill in funding gaps, due to the the Iran conflict. So as long as that is continuing to go, I think the administration is probably gonna continue to ask for supplemental funding. Whether it's to support that is one thing or it could also just be to, fund replenishing the national stockpile of weapons and other DOD, needs. Okay, so now let's get into some just there's a lot going on, but I want to focus on four big kind of policy actions with big implications for FY '27. So let's start with CMMC. In case you haven't heard back in July, I do recall implementation of phase two of CMMC, contract requirements, and they set up this new CMMC reform task force, and they were tasked with running a sixty day program review, which I believe ex expire or concluded last week, I wanna say, if they're on track. During that window, they said no waivers are being granted. Level two and level three third party assessment requires requirements were or what's being paused, but the lower certification levels are not impacted at all. Then on September 3, DOD issued a class deviation directing that contracting officers follow the relevant, revolutionary far overhaul rules instead of the final CMMC rule. I wanna flag that because what it does is formally ties CMMC into the broader RFO reform effort. So it isn't something that's happening in isolation. Now major driver for this move according to the DOBCIO was concerns about cost and the administrative burden, especially the small businesses. So after that, they released an RFI, titled Reforming CMMC and Reducing Compliance Verdict for the DIB, Defense Industrial Base, specifically asking industry for input. Right? So some of the implications here, basically near term compliance is reduced but it's not eliminated. So during that sixty day review and until further guidance is issued, contractors should expect the self assessment level one and two requirements to be included in new and amended solicitations. But they're pretty clear that the higher levels, the level two and three, third party assessments are currently in suspension while under review, but they're not repealed. And they point out that there's, a DCARS rule and the NIST SP eight hundred one hundred and seventy one revision, two based on obligations that remain enforced, as well as rules around contractors that handle federal contract information, FCI, or, classified or contractor, unclassified information, still carry the safeguards and the reporting of responsibilities around that. So active solicitation and contracts that are level two or three will be amended, to remove those if you have contracts that have those in there. And that'll happen via modifications before the next option period or the next administrative modification. So contractor, you should watch out for amendments and modifications on any contracts that have that rather than assuming any automatic changes. Just check on that. So that's not in there. Again, no waivers. So one thing to note is that the task force will be delivering recommendations to, the CIO with further guidance, but we don't have a timeline for that yet. Just treat this as interim while watching for the Task Force recommendations when they become public. Just for reference, if we look back to March 2021 when DOD reviewed the original CMMC, it took the Pentagon about nine months to unveil CMMC two point o. So I don't know if it's gonna take that long, but that's just something, you know, to keep in mind that it could be a minute before we really know what the the next version of this looks like. Okay, so next up is DOB supplier cost and pricing transparency initiative. I want to walk this you through this one as kind of a before and after story because less than a month separates these two memos and, the walk back is pretty significant. So the original memo dated, August 18 directed full cost and pricing transparency across all contractor tiers on contracts over 10,000,000, and that was whether certified cost or pricing data was required or not. And it directed the, secretary for acquisition and sustainment to set up these quote unquote fair and reasonable profit margins by product and service line. Here's the one that blew the heads off of contractors. It floated the idea of exploring an API based tool to to pull cost data directly from contractors' ERP systems, as well as, heightening enforcement of costs and software data reporting. Now, of course, that memo alarms a lot of folks, understandably, especially that direct ERP access. And I feel like DLD heard. So then on September 14, they released this implementation memo that basically softens a lot of that. So it said price information gets requested first and then cost information only to the extent that it's needed for them to establish a fair price. Cost data gets requested in whatever form the contractor already maintained it. So, no new reporting burden, information only gets used for the specific pricing action it was requested for, and that there wouldn't be any API access without express contractual authorization and security protection. And then also that the they are revising their profit policy so that the negotiated margins reflect value delivered, risk carried, and private capital investment, not just the cost incurred. It also mentioned that they were gonna use commercial benchmarks to inform negotiations, but they wouldn't use those to set caps. So implication here, DOD is I think they're really trying to balance the demand for more insight into your pricing and cost. But they're also trying to limit the compliance burden because they're trying to grow the defense industrial base and attract more traditional and nontraditional providers. So while DOD has given an additional thought to the and so there's still justifiable concerns. Right? There's the sensitivity of of the labor and rate data. There could be differences in commercial versus government labor category mapping. There's the when you look at margins, if they draw comparisons, they could be penalizing companies that are just more efficient. So if they focus just on cost of price spread without controlling for any other efficiencies you might derive in your company to create that margin, that could be an issue. And then you have some small and midsize companies that may not have the data infrastructure to kinda test these baselines. And then lastly, uneven compliance, system maturity. Not everyone has, you know, a a system set up to print for that. They should look into getting one. So the bottom line is that contractors should be prepared for these kind of value to cost conversations to be centered in negotiations. I do think, you know, I try to look at a silver lining. It could be that, you know, profit policy could work in your favor if you can clearly document the value that you're delivering, the risk you're carrying, and the capital you've invested, like I I mentioned before. So that's really important when you are kind of looking at your, risk, balancing and exposure, being able to show that helps, address some of that. Okay. So this next one in my view is one of the most disruptive items In the past couple of years. The proposed changes to small business size standards. So on August 20, Sba announced a sweeping overhaul that will reclassify more than a 100,000 companies to small businesses. So that's about three times the the current number, and that and those newly eligible, contractors could count towards agency small business goals. Now at the same time, firms in 24 industry groups would lose small business status entirely and get pushed into, large business competitions. Now underneath that headline number, there's some real structural changes we should all be prepared for. SBA would merge, their receipt based and employee based standards into a single system. They wanna collapse the six digit NAICS codes into a combination of four and five digit codes and eliminate all subsidiary exceptions. So in practical terms, what this means is if you're a small business, you may suddenly find yourself competing against companies that used to be your, large business competitors, except now that they carry they would carry small business status. And anywhere size whose certification is required, you know, on ramps, follow on competitions, you know, we should expect to see some real churn there. On the flip side, if you're a small business on the verge about growing that status, you'd be able to maintain it. Now Now if this is implemented, it drastically reshapes a small business competitive environment, and it's landing at a moment where small business participation has already been on a long term decline. So looking back just a few years, in 2017, we had 86,000 small businesses participating in the market, and it's about 60,000, for 2025. So I know SBA is definitely getting an earful about this. The last time I checked, which was late last week, there were nearly 70,000 comments on regulation.gov about this, and and yesterday is when the comment period closed. So I hope you all were able to get in and make your voices heard. So I'm gonna walk through just a little bit of of stats here. They said over a 114,000, companies would be classified as small business, 37,000, of which are current federal contractors holding a 106,000 contracts, valid at 71,000,000,000. So this is finalized. Contracts filled by newly reclassified firms who become eligible to count towards agency small business goals as I mentioned. So, this is kind of a big deal. It also expands some, financial assistance programs like the seven a and five zero four loans, some disaster loans, and things like that. So, we we have to keep an eye on what this looks like because it could be an adjusted change. So, in case you haven't had a chance to review the proposed changes, I wouldn't forgive you. I I would forgive you if you hadn't because there's almost a thousand, a thousand of them. But I wanted to include some here. I'm not gonna read through the entire thing, but I wanted to pull out a few numbers because I think they really show the scale of what we're talking about. So the most dramatic swing seem to be, in some of the the IT NAICS code. So computer systems design, custom computer programming, and other related services would all jump from 34,000,000 as the cap to 531,000,000. Oh, almost a 1500% increase. We also see some pretty big jumps in consulting codes like environmental consulting and other scientific and technical consulting, which would move from 19,000,000 to $295,000,000. And then construction engineering moved to a little bit less dramatically, but some of the changes are structural. So, for example, software publishers would move completely off of a revenue based standard entirely into, employee standard. 3,600 employees. There are about 85 of those that kind of shift from revenue based to employee based. Several of those are in the construction area, like highway street and bridge construction, plumbing, heating and air conditioning, electrical contractors, etcetera. So of the nine seventy nine size standards, about 200 show receipt, caps that were increased more than a $100,000,000 and, 237 have employee caps that were almost, or more than doubled. So keep an eye on this. See what comes out of the comment period. I wonder if SBA will see those 70,000 because the consistent theme there was the same small actual small businesses competing against bigger small businesses with tons more resources is would create problems for them. So I really encourage you, whether you're small or not, because you're probably teaming with small businesses, just get a get an idea of how this rolls out. Okay, I want to tell briefly about what's happening in the eight program as well while we're talking about small businesses. There was a final rule on August 11, and then, guidance issued September 10 that set in place kind of three major reform initiatives. So one is eligibility. So, in basically saying that applicants have to demonstrate social disadvantage versus the prior rebuttable presumption of disadvantage for members of designated racial and ethnic groups. So now that SBA's, you know, those fraud investigations and policy changes are done, you know, applications start to flow again. So in fy twenty six, what we're seeing right now is that there's 91 new entrants to the eight program. But it's interesting to note that literally every single one of them are either Native American, Alaska Native, Native Hawaiian, or tribally owned. So that's interesting. The second pillar is this potential for success. So this came out of the guidance where they're reinstating this, potential for success reviews process where applicants have to demonstrate that they've been in business for been in business and won contracts in their primary NAICS for at least two years before applying. SBA is going to look at things like access to capital, their technical and management experience, operation history, their private and public sector past performance, and kind of their financial positioning. And then the third area was this fast track initiative. So they want to fast track a applications for small businesses that are certified under these 10 NAICS codes. Now this initiative responds to there were a couple of executive orders around defense acquisitions, spurring innovation, boosting the defense industrial base, and securing supply chains and things like that. So, those executive orders kind of drive this fast track initiative, which really addresses the administration's desire to increase defense capacity and small business manufacturer resilience. So, it's it's a it's really around the national security strategy, but also addresses the dwindling, I mentioned it before, the strategic stockpile. And they've also been concerned about long production times, and manufacturing for defense needs. The guidance would allow SBA to skip this for this fast track. They would allow them to skip review of their previous two years of income tax as long as they can show that they have experience, operational capital, past performance, and ability to perform. So, again, if you're in these NAICS, kinda keep an eye keep an eye on how that that rolls out. Okay. So I just want to mention a few more actions to watch. So, obviously, all of, well, big portion of this year was around the revolutionary fire overhaul. They are now in the rule making process of that. It's been organized into 12 different far cases containing groups of proposed rules. So there's actually now, eight cases that roll up, you know, a a big chunk of the individual parts. Right now, so that's they're in the state where the far teams are reviewing public comments and, drafting the final rules, at least for the first four. So the second four just came out the other day, and so that still has to you know, they have a comment period for that. I believe it's it's sometime next month. But for the original four, they're already drafting the final rule around that. They, they're still reviewing the public comment, and they have a report due, November 8. The other thing is the f y twenty seven National Defense Authorization Act It's passed by the House. It's since since stalled in the Senate. It's probably not going to be any intention obviously until after the midterms. Both versions address a wide range of acquisition provisions including for things like the use of other transaction agreements, commercial solution openings, and small business. So keep an eye out for that after the midterms. We should always watch GSA and what they're doing in terms of contract consolidation. They've made big moves with that new authority by terminating all of the NITAAC, GWACs, like CIO SP three and CIOCS. It's not clear what else, may be on tap there, but they are actively that's their new authority to look at where redundant spending is. So we should expect more contract consolidations. And they're also renegotiating prices under their one gov program, which is that program where they basically bypass VARs and systems integrators, and they wanna negotiate directly with the OEMs to get their best pricing. This is really focused on IT software right now, but they said it's going to expand to other parts of IT and then other categories as well. And then this year have been pretty dominated, by AI under the on one gov, but the plan was always to expand. I want to mention the Stop Secret Spending Act. If you're in the OTA area or you're interested in that, this was a bill that was signed on 09/11. It kind of expands the definition of Federal award to include otas, and therefore requires agencies to report on usaspending.gov. Now they've been we've already seen reporting there but it's been fairly inconsistent. So we'll be able to get a better picture of that. Moving forward once this agency start to to comply with this. So, keep an eye out for that as well. Okay. So that's a lot already. So let's turn our attention a little bit to some things to consider as your your developing strategies for f y twenty seven. So with the SBA size overhaul, like I said, this is biggest disruptor. It's not incremental. If you're a midyear contractor who spent the last several years planning your graduation out of, you know, small business set aside, you know, your timeline's gonna move. If this is if this goes through, it's proposed. A chunk of your current competitors will stay small longer, or companies currently just above the threshold, obviously, will drop back under it. And so if you're small and reliant on set aside, your competitive pulls about to get larger and less differentiated by snake specificity. So understanding your competitive pool will be critical. Now it's difficult to get a sense of, like, the full competitive pool because we don't know total revenue for every company, but you can look at companies that have one contract obligations for your specific NAICS up to the receipt cap. Right? Because that'll tell you we know that they at least have that much in revenue. So they could be in your pool, but they could be bigger if they have other revenue streams. But getting trying to start getting a sense of who else is in that next group and, you know, who are some of the bigger companies that you've seen that may qualify and be eligible now small business. I go a step further and narrow in on those that have won awards under the product service codes that align with the type of work you do. So NAICS describe the company type, but PSCs describe what the the government is buying. So in your kind of competitor, Venn diagram, you need to look at the space where those two cross. Also staying informed of Rfo status. Agencies are implementing changes now through class deviations. Well ahead of the far rule making text to catch up. So just make sure that you've built contract review. Around that. Because requirements can change from deviation to final rule. And on a related note, just try to learn as much as you can about how the CEOs that you're engaging with are interpreting both of those, because the rfo provides significantly more discretion to CEOs for shaping and acquisition. So there's probably going to be less consistency across agencies. So you'll need to assess each agency that you're dealing with. Another thing is pricing and estimating. So we have this fixed price executive order that basically said fixed price needs to be the default. When you combine that with RFO and other policies, they create pricing and estimated estimating challenges, so not just compliance challenges. So if your book of business skews, let's say it skews cost reimbursement more or time and materials or labor hours, especially if you're, like, in professional services, r and d adjacent, or really anything with evolving, like, complex requirements, you need to be actively, looking at your estimated and risk pricing capability now to look for areas where you may need to rebuild that with a fixed price, approach in mind. Don't wait for the recompete, please. Contractors who can't price fixed price work with defensible margins will probably be squeezed. You know, this also favors, you know, those with mature, like, earned value management and estimating disciplines and penalizes the companies that kind of been living off of cost plus predictability. That's becoming less predictable, between executive orders and NDAA provisions. So just kind of do a a a review of your your pricing and estimating processes. CMMC, obviously, keep an eye on that. I mentioned that we're getting to the point where, hopefully, we'll get to to see more indication of where things are going, but don't sleep on any security requirements now. That is a competitive differentiator. If you note show that you have a a highly secure environment, even if you haven't gotten to the point of, third party assessment or whatever, security is is top of mind. And then also auditing your portfolio. Not just by ownership, not just by agency, I mean, but by category. So, any vehicle you hold that's agency specific, if it sits outside of GSA, GWAC governance, and it provides common goods and services, it it could be a consolidation target. So you kinda need to go through your portfolio, your pipeline, and get a sense of, like, risk level. So prioritize positioning on GSA managed vehicles in addition to your any agency specific vehicles, but be ready to pivot. You'll need to do risk adjustment. So, you know, some contractors tend to have kind of standard pipeline multiples. In our clarity report, for example, most folks said they have a three to four times multiple, in their pipeline. I've seen as high as tenants, but also needs risk adjustments based on the factors that can impact his viability. So things like vehicle consolidation exposure that I just talked about, whether something is funded and awardable versus just funded on paper. Like, well, it's in a budget request, but we don't know is it something that's actually going to be awarded, level of conversion risk if you're having a shift on cost plus the fixed price, modeling set aside scenarios under both the current small business size standards and the proposed ones. And then another thing to consider is kind of widening your your age tolerance for the ops in your pipeline. Right? Because of environmental issues, you have c r's and consolidation, all these acquisition reform initiatives, that make could make slippage in your pipeline look worse than it than it really is. And it could make the aging of your pipeline look worse. But this is the type of environment where a stale pipeline can mask deterioration of your pipeline health. So just think about increasing the frequency of your aging reviews rather than loosening the the thresholds themselves. Hopefully, that makes sense. You wanna catch the opportunities that are maybe dying on the vine because of a polish policy shift, not just letting everything drift to the right uniformly. Right? So there's a little bit more kind of thought put into how you're assessing these things. And then concentration risk. So beyond the standard, you know, customer and agency concentration check, look at what percentage of your pipeline sits on vehicles or contract types that may be facing structural change in the next twelve months. Like, if it's NITAAC, any of those contracts, those are going away. If you're heavily concentrated in cost plus type stuff, you need to think about how to, mitigate for that. If you are 100% set aside dependent, you know, assessing what that means. So a pipeline that's diversified by agency but not by concentration, especially things that are affected by the same policy shift isn't as diversified as you think it is. So just kind of be thoughtful and and assess that pipeline, more frequently. Couple more slides. Just understanding federal workforce dynamics is also a good element to think about as you're planning. You know, the ACEs have been structurally changed because of the deferred resignation, the hiring freezes, the reduction of force requirements, all of that. That's really cut out almost 300,000 federal employees, mostly in, like, these professional services occupations. So these charts tell kind of one story that attrition cuts both ways. It's an opportunity and risk at the same time. On the left, we've got reductions by occupational group, a lot of admin, accounting, legal, IT. And then on the right side is reduction specifically in the contracting and procurement occupational group by agencies. So these are the agencies that took the biggest hits of their contracting workforce. Obviously, DOD lost the most in terms of absolute numbers, but no agency went unaffected. So agencies that, you know, lost staff may lean harder on contractors to fill capability gaps. That's opportunity. But, that same attrition is hitting CEOs and and CORs and even project managers. So those that move opportunities in your pipeline through solicitation into award. So modeling award date slippage as a structural expectation for FY '27, not just an s execution risk that's specific to any one opportunity. You need to look at that factor across everything because a short staff CO office is a it's a systemic drag on your entire the velocity of your entire pipeline. So, keep that in mind. And then let's close out with, AI and the acquisition life cycle because AI is touching every single stage now, not, you know, just evaluation. And it's it's embedded in the procurement cycle. So there's some strategies to think about here as well. One is algorithmic filtering before human review. So agencies use AI to scan sam.gov and, you know, contract history and past performance data to kinda shortlist. So if your information is sparse or it's narrative only kinda capability statements, you may be risking being deprioritized before a human even sees it. So just think about your capability statement, your past performance narratives around structured keyboard keyboard complete data, you know, makes the PSC coverage, quantify outcome certifications, things like that. Make sure it's a good mix of that with, narrative. We don't want to be, you know, pros heavy marketing language because more and more they're using AI to kind of scan for that stuff. So treat your profile and capability statement as a data set as well as a like a pitch document. Requirements drift from AI assistant drafting. So agencies are using AI to help draft requirement and statements of work based on prior contract language. That could be stale. It could have incumbent specific specs baked in there, or it could simply be unrealistic in terms of, you know, technical or cost expectations that really only surface during the q and a. So it's a good idea to actively engage on those things and question, any questionable draft language before it gets baked in. Hallucination, inconsistency, risk, and AI directed solicitation language. We all know about AI hallucinations, but just making sure that, you know, if there's any far clauses misapplied or things that introduce ambiguity, make sure that you make that known to the agency. Make sure it's caught before release because that's protest exposure for them, but also interpretation risk for you during your proposal development. Also just making sure you more reviews to check for any internal inconsistencies in your own stuff. You know, new structured submission requirements are, the guidance has been there. So agencies are starting to standardize using machine readable proposal formats to make it easier for AI, right, to, conduct compliance evaluations and and verify making sure you're aligned with solicitation requirements and instructions and all that. So, we're seeing more and more solicitations specifying the format because they wanna be able to use AI. So if you can look at your tool proposal tools, your templates, making sure that, they can output in multiple structured formats on short notice. That's probably a good thing. And then writing for, you know, the algorithm underscoring potential. So what I mean by that is, AI assisted technical evaluation scores against kind of predefined benchmarks. So if there's any unquantified narrative defined risks, or narrative differentiation, it could risk underscoring even when the underlying solution is strong, because we know agencies are still trying to set up governance around how agencies are using AI for this. So not everything is locked in right now. So when possible, if you have a qualitative if you can pair a qualitative discriminator with some kind of quantitative benchmark claim, whether it's a, you know, metric, some comparative data, some kind of measurable outcome. That way it can survive human review and the AI review in terms of scoring. And then having someone explicitly reviewing drafts for, you know, is this claim structured enough to be scored is probably not a a bad idea on top of is it well written. And then higher volume, lower tolerance automated contract monitoring. So, agencies are using AI tools for extracting information from deliverables and invoices, comparing modifications, or, identifying, you know, contract clauses that can improve consistency for them, but, that lowers the tolerance for any informal workarounds that you've been able to kind of navigate with agencies when issues pop up. So tightening your, internal deliverable and invoicing discipline now, will be a good idea. Just kind of look look with eyes as if it's going to be machine checked, because most likely it will be. Okay. So wrapping up here, I want to share a little bit about what contractors secondly, we're gonna do to mitigate some of the issues we talked about today from our clarity survey. You know, everybody's looking at how do I ID opportunities better and earlier, how can I improve my sales and capture processes and the technology behind that, how can I get better with, pricing and estimating, and, also, how do I get better with, project management oversight through the entire project life cycle to identify risk earlier? A lot of contractors who's in the survey really only look at risk in a program on the front end, and they don't consistently do it through the whole project. So if something pops up, this is not the administration that have issues that drive up costs or put things behind schedule. So just some some diligence around that, I think, is a great idea. So key takeaways, budget uncertainty is chronic, but not necessarily predictive in terms of like that absolutely means the contract spending is gonna go one way or another. Acquisition reform I say it's in like the toddler stage. If you had a toddler, they're always on the move, but potentially destructive depending on how it's rolled out and implemented. So just being agile and being able to kinda respond and pivot. I talked a lot about pricing and and policy and things like that are very important, and just readiness, having data integrated, being able to move quickly, being able to quickly understand and interpret things that are happening, I think, is what our what we're seeing our top performers do. Alright. So that's a lot of information. I wanna thank you for your attention. I'm gonna we do have a few minutes left here for for q and a, so I just wanted to check that. And and, Leslie, if you wanna go ahead and and do our polls. Yes. Absolutely. Thanks, Denise. And while Denise starts looking through the questions that have come in, we have a a couple of polling questions. So we're gonna start with our our first one. Let me go ahead and share that. So you should see that on your screen now. And so our first question is, would you like to be contacted by a sales representative to learn how Deltek's ERP solution, Costpoint, can help you better manage finances and projects, maintain maintain compliance, and increase productivity? So if you can go ahead and answer that, if you'd like to learn more about Costpoint, what it might look like for your business, how it can help you solution some of the challenges you may be facing, many of which, Denise spoke about today, we'd be happy to speak with you directly and have someone reach out to you. So while, you are answering that, Denise, I'll turn it over to you for the first question. Well, first, I want to thank you in the the notes because I had been heads down on getting prepared for this. So they did extend the comment period for the SBA size standards. I'm. I kind of saw that coming, given the volume of that. So you still have time. Please go comment. There was a question about the probability of it being implemented as written In a in a regular time, I would say very low just because of how drastically different it is. But this administration is proven to kinda push things through, and kinda navigate around kinda your traditional, you know, regulatory boundaries. So I it it's a lot. I would say that this is probably not gonna, I can't say whether to go through as implemented, but I would not be surprised if we see a bunch of lawsuits around this, to be honest with you. So, I still think it's it's important to just kinda keep an eye on and be prepared and know what that world looks like for you as far as your NAICS and all that and the type of work you do. Just be prepared for that. Yeah. That's it. Most of the questions are around the the SBA stuff. Okay. If you wanna take another look, let me just go ahead and share that second. polling ahead. question. Okay. We're gonna move on to our next question. And okay. So now we have, would you like to speak with a Deltek sales representative to access a free trial of GovWinIQ? For those that you may not be aware, GovWinIQ is Deltek's opportunity intelligence solution that helps businesses find track, win government contracts across The US and Canada. So if you would be interested in learning more about that as a tool for your organization, we'd be happy to have somebody reach out to you for that as well. So, Denise, if you wanna, take any final questions here while folks are responding to that or any last comments. Yeah. I'll take one more because there was a question. I had to be about put this putting this in here, but DOD had a a memo, several months ago that, raised the, threshold for, CAS compliance, cost accounting systems, and basically raising some of those thresholds that make, it necessary. And so I have looked at that, and the way that when I combine that with everything going on policy wise, my advice is that even if it's not necessary, I advise every contractor to be as sophisticated as possible with those systems because like I said on one of the one of the previous slides, the mechanism and the regulatory environment, is in flux, but the demand for that for just very detailed information around price cost, you know, and the risk involved if you are not able to quickly kinda get that information, if it's stovepiped or whatever. I see those systems as, kind of a competitive differentiator because you you whatever those thresholds are, they're still going to be demanding. There's so much scrutiny on what you're doing as a contractor, the value they're getting out of the contract that, I don't know. I think it it's it's a long term in investment, definitely. But there are policies around that and kinda shifting some things to more, generally accepted accounting principles with gap things. So a lot of that is still in flux, but thank you for that question. So in the interest of time, Leslie, I'll let you go ahead and wrap up. I wanna thank everybody for your time and attention today. Alright. Well, thank you, everyone. And before we officially conclude, we wanna remind you that you will be receiving an on demand recording of today's webinar that will be sent out to you within twenty four hours. Again, if we were not able to get to your question today, as appropriate, we will be sure to follow-up with you directly offline. Also, we'd appreciate if you fill out the short survey you currently see on your screen. Your feedback, is very helpful to us and helps us continue to bring you, great content and value in webinars like you, joined us for today. With that, I'd like to thank you all for joining us. Thanks to our speaker, Denise, and remind you to please visit deltech.com for more information of gun GovCon webinars and additional events that we have upcoming. Thanks for everyone. Have a great afternoon. Bye bye.