Guest Post: Project Management and AI Challenges in 2024-25

Government Contractors and A&E Firms Facing Business Development, Project Management, and AI Challenges in 2024-25

Article contributed by Deltek

It’s no secret that government contractors and architecture and engineering firms are facing a rapidly evolving market environment. That’s why every year, Deltek analyzes survey responses from hundreds of organizations in both the government contracting and A&E fields to produce two reports – the Deltek Clarity Government Contracting Industry Study and the Deltek Clarity Architecture & Engineering Industry Study. These comprehensive studies help business leaders identify challenges that peer organizations are facing and the steps they are taking to overcome them.

Firms that contract with the government can use the findings from these studies to inform their business development strategy. Study results can also help identify areas to improve operational efficiency and effectiveness and can help set business goals to better understand how a firm stacks up to competitors in the market.

In this article we’ll examine three top-of-mind topics for A/E and GovCon professionals that were identified in the Clarity reports – business development, project management, and artificial intelligence.

Business Development Challenges Include Competition, Resources

Survey respondents report a somewhat mixed bag in terms of the business development environment. Growth in sales revenue from the government market was reported last year, but increasing labor costs and persistent inflation concerns are top of mind.

“I think inflation is still having a bigger impact than expected this year,” said Teresa Moon, Director of Business Development for Parabilis and one of the experts quoted in this year’s GovCon Clarity study. “[Contractors] were looking at more potential growth than what they were able to sustain profitably on what they were paying for their people and services. The cost of doing business isn’t getting any less. It’s getting more.”

Despite inflation concerns, A/E firms remain positive with a 10.9 percent net revenue growth forecast, marking an increase (+0.7 points) over last year, with small firms reporting an 8 percent net revenue growth. However, this growth comes against a backdrop of shifting challenges. While employee turnover has stabilized, it hovers around 14 percent for all firms and 16 percent for small firms. Just like in the GovCon sector, A/E firms in the commercial sector face challenges related to rising labor costs and developing talent to meet project delivery needs. As a response, firms are increasingly seeking suitable teaming partners and leveraging strategic networking to source and close new business opportunities.

One challenge that businesses face regularly is a lack of business development resources and tools, which results in difficulties in responding to bids and RFPs. As resources continue to be limited, and the talent market continues to intensify, businesses should rethink how best to use their capabilities and people. Survey results also highlighted consistent challenges in business development, like increased competition and finding time to nurture client relationships.

Budget Challenges Remain in Project Management

While many A/E firms remain optimistic and more than 12 percent of survey respondents are forecasting growth this year, they still remain hesitant given the macroeconomic pressures that are impacting projects. Budget challenges remain a huge project management concern for A/E firms. According to the A/E Clarity study, overall, 31 percent of projects were delivered over budget, with small firms reporting 34 percent over budget, equating to about one-third of the work the firms produced. Survey results appear to indicate that larger companies struggle more with staying on budget and schedule, likely due to more complex projects.

Another challenge for many firms is outdated processes. Many still utilize spreadsheets and manual data entry for accounting, finance, and resource management. Project managers are often overburdened and wear multiple hats, having financial and resource management responsibilities in addition to their project management function.

In the GovCon Clarity study, respondents reported the same top three challenges as last year. At 28 percent, accurate cost forecasting ranked first, followed by poorly defined scope ranking second, and collaboration and communication taking the third spot. Given increasing cost pressures from inflation, competition, and growing contract and compliance complexity, it’s no surprise to see cost forecasting concerns rise to the top. Poorly defined project scope, a continuing challenge, may also significantly contribute to accurately forecasting costs, making clear lines of sight to project completion difficult. Collaboration and communication issues are also a challenge for government contracting organizations, a continuing trend from previous years.

In response, nearly half (48 percent) of government contractors are investing in project management training, while 43 percent are developing best practices. These initiatives indicate internal efforts to improve the efficiency of existing staff and processes to combat these top challenges.

Artificial Intelligence Adoption a Top Priority

This year, artificial intelligence (AI) and machine learning (ML) have become the top technologies prioritized for investment among both GovCon and A/E firms as they look to increase efficiency, reduce operational costs, and save time. Over a third of government contracting firms ranked AI and ML in their top three priorities, above perennial focus areas like cybersecurity, data management and integration, business automation, and cloud infrastructure. This rise is likely fueled in part by new developments in AI, where companies have less existing capability built out versus more mature technologies. It is worth noting that 62 percent of A/E firms expect AI to improve operational efficiencies across their firm.  

These developments are taking place at every point in the government contracting project lifecycle. In the GovCon Clarity study, Gloria Larkin, President and CEO of TargetGov said, “Artificial intelligence is being used across all elements of the procurement lifespan, everything from market research, into the actual requirements, into award through contract execution, all the way into contract completion and wrap up.”

While experts agree that even the best AI tools require human input and review, firms may find that without investing in tools that leverage cutting-edge technologies to support their business processes, they run the risk of falling behind.

Key Takeaways for Government Contractors and Architecture and Engineering Firms

Overall, last year’s performance was strong for government contractors and A/E firms, but many industry headwinds, such as inflation concerns and a challenging talent market, are making things difficult for many businesses. Larger companies especially are struggling with project management issues like keeping larger, more complicated projects on time and on budget.

While small businesses are subject to the same trends as their larger counterparts, the pressures can be especially impactful to small companies with tight margins. Small businesses looking for a leg-up on the competition should consider attending SAME’s 2024 Federal Small Business Conference. Hosted from November 20-22 in New Orleans, attendees will be able to connect with leading experts, decision-makers, solution providers, business partners and federal contracting officers.