A Real Economy publication

Government contracting outlook

May 31, 2024

Government contracting outlook key takeaways

Companies must align their systems with government standards to participate in defense contracts.

Successful contractors will align their processes to meet the government’s objectives.

Artificial intelligence and machine learning are changing the environment for contractors.

Government contracting trend #1: Overcoming barriers to entering the defense industrial base

As inflation and interest rates rose last year, businesses turned to resilient markets to sustain their growth, and investors sought to diversify portfolios and protect their return on investment. Many companies that focused on the commercial marketplace found a recession-proof customer with spending power above $800 billion every year: the U.S. government.

However, entering this market is no easy feat. The government imposes many rules on contractors for eligibility to win and execute contracts. As a result, the government contracting ecosystem has high barriers to entry, and the defense industrial base has been consolidating over time.

Companies that choose to enter the market must remember that a goal without a plan is just a wish. Successful new entrants will prepare a targeted strategy for entry into the defense industrial base and implement the operational tools and processes required to bid, win and execute.

More participants in the defense industrial base benefits the United States. The U.S. government, its citizens and its economy will benefit from the competition that drives productivity, efficiency and technological innovation.

Government contracting trend #2: The 2024 National Defense Authorization Act

President Joe Biden signed the fiscal year 2024 National Defense Authorization Act (NDAA) into law in December. It includes provisions to expedite the U.S. Department of Defense (DOD) procurement of goods and services, strengthen the defense supply chain, protect the nation and increase the use of artificial intelligence (AI) to improve data analysis.

Middle market defense contractors must understand the changes in the DOD acquisition landscape and keep up with defense priorities. Having a clear understanding of how the government can acquire their services or products will help contractors win and expedite government procurement.

Government contracting trend #3: The future of defense is artificial intelligence

The United States’ industrial policy includes vertically integrating defense manufacturing by reshoring semiconductor production and investing in research and development to create the technology needed to compete globally, providing the bandwidth, tactical prowess and speed to defend our nation.

As tensions continue to rise between the U.S. and China, and conflicts persist elsewhere in the world, our nation’s leaders are assessing the current state of our military. The technology our defense industrial base provides will be vital in maintaining a competitive military advantage over near-peer threats with greater size and scale.

The government will likely leverage the rapid advancement of artificial intelligence (AI) and further development of unmanned vehicles to accelerate military capacity while improving tactical prowess. Government contractors, in turn, will need to align their strategies and enhance their functional operations to meet the demands of their federal government customers with equal speed and technical advancement. 

RSM contributors

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