Driving Revenue Stability Through Government Contracting

Consulting services companies face unique challenges in the government contracting marketplace, particularly regarding inefficiencies, lack of expertise in business development, and the unproductive allocation of resources. Many firms struggle with managing non-billable time, particularly with consultants “on the bench”—employees who are not engaged in revenue-generating activities. This article explores the high costs associated with entering the government contracting market, outlines the inefficiencies these companies face, and highlights the lucrative potential of government contracts for consulting services. It further examines the limitations of attempting to develop internal business development capabilities and contrasts this with the option of outsourcing the entire process to specialized firms.

The Biggest Challenges for Consulting Firms Today?

Unallocated Labor and Increased Operational Costs

Consulting services companies often employ highly skilled professionals who can provide exceptional value to clients. However, many firms have a significant portion of their workforce "on the bench"—consultants who are not billable to clients due to project delays, lack of business development success, or seasonal fluctuations. This unallocated labor results in substantial overhead costs, which drain resources and reduce profitability.

• Unbillable Time:?Bench time leads to higher operational costs without corresponding revenue, contributing to financial instability.
• Inefficiency in Business Development:?Many consulting firms attempt to use this unbillable time for business development efforts, particularly targeting government contracts. However, the employees tasked with these activities often lack the expertise necessary for effective business development in this highly competitive arena.
• Employee Burnout and Attrition:?Unproductive work environments can lead to frustration, burnout, and job loss, further impacting the firm’s ability to retain top talent.

The Complexity of Government Contracts

Government contracts are a lucrative but challenging market to penetrate. The U.S. government is the largest buyer in the world, spending billions of dollars annually on consulting services, yet winning these contracts requires a thorough understanding of procurement processes, compliance with specific requirements, and a significant investment in time and resources. The complexity of government solicitations, including RFPs (Requests for Proposals), RFIs (Requests for Information), and Sources Sought notices, often overwhelms firms without dedicated teams focused solely on government procurement.

• Procurement Process Complexity:?The federal procurement process is notoriously detailed and requires careful adherence to rules and specifications. For consulting firms without the necessary expertise, this often results in missed opportunities and costly mistakes.
• Difficulty in Identifying Opportunities:?Sourcing appropriate government contracts that align with a firm's strengths is a time-consuming task. Many firms are unfamiliar with the government’s online procurement portals (e.g., SAM.gov ), which adds to the difficulty of finding and competing for contracts.

Historical Data on Government Contracts for Consulting Services

The government contracting marketplace offers substantial financial opportunities for consulting services companies. According to public data, U.S. government spending on professional services exceeded?$160 billion?in FY2023, with consulting services accounting for a significant share. For example, consulting firms such as Booz Allen Hamilton and Deloitte have consistently secured multi-million-dollar contracts across various agencies.

• Total Contract Spending:?Over the past five years, the U.S. government awarded over?$38 billion?in contracts specifically related to management consulting and advisory services.
• Average Contract Value:?Data from the General Services Administration (GSA) indicates that the average value of consulting contracts awarded is approximately?$500,000, with many contracts reaching values of?$10 million?or more for long-term engagements.

These statistics underscore the significant revenue potential in government contracting. However, the inability to efficiently navigate this marketplace often leaves smaller consulting firms sidelined, missing out on these lucrative opportunities.

Solutions to Overcome the Challenges

Internal Business Development: A Double-Edged Sword

Many consulting firms attempt to build internal business development capabilities to tackle the complexities of government contracting. This approach typically involves repurposing consultants who are on the bench to focus on identifying opportunities, writing proposals, and managing submissions.

• Advantages:?By leveraging in-house talent, firms retain control over their business development processes and can potentially build long-term expertise.
• Disadvantages:?This approach pulls valuable resources away from core business functions and often leads to inefficiencies. Consultants trained for client-facing projects are generally ill-equipped to manage the nuances of government procurement, leading to suboptimal outcomes.

While internal development can lead to some successes, it also requires a substantial investment in training, time, and resources that many firms cannot afford.

Outsourcing Business Development for Government Contracts

An alternative solution to managing business development internally is outsourcing the entire process to specialized firms. These external partners focus on identifying opportunities, writing, and submitting proposals, and managing all follow-up activities. Outsourcing allows consulting firms to focus on what they do best—delivering value to clients—while ensuring a steady stream of business opportunities.

• Efficiency and Cost Savings:?By outsourcing business development, firms eliminate the inefficiencies associated with non-billable time and reduce the need for internal resources to focus on non-core activities. This can lead to substantial cost savings, as employees are kept engaged in billable work.
• Improved Success Rates:?Specialized firms with experience in government contracting often have higher success rates in winning bids. These firms understand the nuances of the procurement process and can deliver "click-to-submit" bids tailored to the agency’s specifications.
• Revenue Stability:?Outsourcing can help firms achieve more consistent revenue streams by securing long-term government contracts. This revenue stability provides a buffer against economic fluctuations in the private sector.

Case Study: Success Through Outsourcing

One example is a mid-sized consulting firm that outsourced its government business development activities to a specialized firm. Within 12 months, the firm secured four multi-million-dollar contracts, accounting for 40% of its total revenue. The reduction in non billable time allowed the firm to focus on delivering value to its clients while improving its profitability.

Leveraging Government Set-Asides and Strategic Partnerships

In addition to outsourcing, firms can further enhance their success by forming strategic partnerships with companies that hold government certifications such as small business, woman-owned, veteran-owned, or minority-owned business designations. These certifications provide access to set-aside contracts that are reserved for specific groups, reducing competition and increasing the likelihood of winning bids.

• Set-Asides:?Government agencies are required to allocate a percentage of contracts to certified small businesses, offering opportunities for firms to secure contracts without competing against larger companies.
• Strategic Partnerships:?By partnering with certified firms, consulting companies can access a broader range of opportunities and enhance their capabilities in delivering complex solutions.

Conclusion

The government contracting marketplace offers significant financial potential for consulting services companies. However, the high costs of inefficiency, unallocated labor, and lack of expertise in business development prevent many firms from capitalizing on these opportunities. While building internal capabilities is one approach, it often leads to further inefficiencies and drains resources from core business functions.

Outsourcing business development activities to specialized firms presents a more effective and efficient solution. This approach not only improves a firm’s ability to win government contracts but also frees up internal resources, reduces costs, and provides a stable source of revenue. Combined with strategic partnerships and access to government set-asides, outsourcing offers a clear path to success in the lucrative government contracting arena.

References

1. General Services Administration. (2023). "Contract Data Reports." https://www.gsa.gov/
2. U.S. Department of Defense. (2023). "Professional Services Contracts Overview." https://dod.defense.gov/
3. U.S. Small Business Administration. (2023). "Government Contracting Set-Asides." https://www.sba.gov/

Contact

For more information on Government Contracting connect with Donald Ray Freeman.