Terminate for convenience!
With these three dreadful words, thousands of government contracts have been terminated in less than 3 months. The new administration’s policy goals are achieved through disrupting what 90 days ago would have looked like “business as usual” to most government contractors. It isn’t so, but many companies were caught flat-footed. It shouldn’t be an after-thought for any business, let alone government contracting companies, to plan for, manage, and mitigate risk to their revenues.
This is especially a bigger issue for small and medium government contracting companies, who rely on their socioeconomic certifications or small business status to get the majority of their total revenue from government agencies. Such businesses must recognize that socioeconomic certification-based awards are a bridge for them to graduate to the commercial sector for future revenue. This doesn’t typically happen, and many government contractors fail to mitigate business risk through timely planning.
The first rule of business risk mitigation is diversification. Government contractors must diversify their revenue streams across geographies, customer segments, service offerings, and industries. To focus precious time and resources and to gain expertise in these critical strategic areas, it naturally follows that they must outsource business processes and knowledge processes to vendors. These business and knowledge process outsourcing vendors must bring in outstanding quality and expertise and create financial value. This saves precious cash, which can then be diverted to build the internal competencies of strategic importance to the company.
Five Strategies that Government Contractors can Follow to Mitigate Business Risk:
1. Diversify Revenue Streams across Different Geographies and Sectors:
To build a stable source of revenue and to reduce reliance on a volatile domestic market, Lockheed Martin adopted this strategy in the 1990s after the government engaged in Cold War defense cuts. They expanded into international markets to sell existing products like F-16 jets to allies in the Middle East and expanded to commercial sectors like Aerospace and Information Technology. Similarly, Serco, a UK government contractor, diversified into healthcare and transportation during post-2008 austerity cuts to offset reduced public-sector spending.
2. Focus on High-Demand Government Sectors:
By aligning products and services with the new administration’s priorities, it is possible to sustain growth and make up for deficiencies in other areas where the demand is shrinking. With the current administration’s focus on becoming more efficient, reducing fraud and waste, and adopting new technologies like Artificial Intelligence (AI), government contracting companies should pivot and offer solutions to government buyers with these priorities in mind. That may require strategy 3 listed below, where synergistic partnerships mitigate risk to revenue for all parties. An example of this strategy is from Palantir’s pivot to federal health agencies during COVID, while defense budgets were tightening. Palantir also provided services like COVID-19 data tracking for the Centers for Disease Control. Similarly, Thales group in France prioritized cybersecurity contracts during the European Union’s austerity measures by prioritizing cybersecurity contracts, a sector deemed critical for national security.
Also Read: Top 5 Contract Vehicles to Pursue in 2025
3. Leverage Strategic Partnerships and Joint Ventures:
Bidding solo brings its own risks with it, and a strategic partnership can open doors to an exclusive contract. In addition, for new areas of priority, such partnerships help with speed to market. A general example for the administration’s AI priorities is for a company with a small team of AI engineers to partner with a company that has a large business development team and existing relationships at an agency seeking AI solutions. An example of this strategy comes from Raytheon’s participation in the Small Business Administration’s (SBA) Mentor-Protégé Program with small businesses that gave Raytheon access to sole-source awards while lifting the protégé company’s ability to get business using mentorship, business development resources, and contract management expertise from Raytheon.
4. Engage in Proactive Government Relations and Lobbying:
The First Amendment of the US Constitution gives us the right to petition and lobby the government. Building relationships and lobbying will allow a government contracting company to shield critical projects from budget cuts. A recent example of how to do this masterfully comes from Apple’s CEO, Tim Cook, who cultivated a relationship with President Trump and his administration during his first term. The recent pause in tariffs on China on smartphones and computers was an act of shielding Apple’s core business because of such lobbying and proactive relationship building. Another example is Northrop Grumman’s lobbying, resulting in protecting funding for key programs like the B-21 bomber during the 2013 sequestration.
5. Build Vendor Relationships and Invest in Agile Workforce Management:
It is important to minimize labor costs and build vendor or subcontracting relationships to scale up and down the workforce based on increasing or decreasing demand. This organizational structure reduces the fixed cost during times of decreasing revenue, allowing the government contracting company to maintain profitability and solid cash flows. During the 2011 US debt ceiling crisis, IBM successfully used a contingent workforce model on its Federal IT projects.
Government contractors can mitigate risk by diversifying their revenue streams across geographies, customer segments, services, and industries. The services should align with the new administration’s policies and priorities as a result of an agile workforce and strategic partnerships, and joint ventures. This requires them to keep strategic expertise in-house and focus precious time on business development. By using business process outsourcing and knowledge processes outsourcing with value-creating third parties, they save cash to build financial resilience and weather the storm.
At iQuasar, we specialize in helping emerging and established government contractors grow their business and make sense of the government marketplace. Get in touch with us today to learn more.
