The Department of Defense received a five percent, $39 billion increase in its funding for 2022. However, President Biden signed the deal in late March of this year, and first quarter financial results within the government contracting ecosystem are now revealing the full impact of this delay.
In the third and final installment of his video interview series with Executive Mosaic, GovCon Expert Jim McAleese, principal and owner of McAleese and Associates and a previous Wash100 Award winner, details how the 2022 budget hold-ups are affecting businesses and investors as we move into the third and fourth quarters of 2022.
“One of the things that was very important in the 1Q results, particularly for shorter cycle businesses, professional services businesses, IT businesses was what was the amount of new bookings that came in?” McAleese said. “Most of those companies were generally weaker in 1Q of this year fundamentally because that extra five percent of 2022 growth had not yet become law, the money hadn’t been sent to the Department of Defense.”
“The money had not yet flowed down to the services, and therefore had not yet made it to the contracting officers to then make those contract awards,” he explained of the slow-down.
As we approach the end of the second quarter of 2022, McAleese said investors are going to be looking at how fast that five percent of DOD growth is translating through contracting officers’ awards into actual bookings.
“Those bookings then drive 3Q and 4Q sales sector profit growth, and then cash flow growth, which is really what the investors are buying the shares for,” shared McAleese.
McAleese also shared advice for both contractors and employees looking to meaningfully contribute to the mission and achieve success in the evolving GovCon marketplace. The three main areas of opportunity McAleese has identified are operations and maintenance; research, development, testing and evaluation; and classified and nuclear triad programs.