Government contractors worldwide have been hit by a perfect storm of business disruption. But help is at hand to manage the challenges.
From government shutdowns to cyber threats and regulatory changes, government contractors in different geographies have had a difficult time of late.
Multiple business disruptors have combined to place increased pressure on bottom lines as companies seek to adapt to the fast-changing contracting environment.
Nowhere is this more apparent than in the US where the recent partial federal government shutdown created significant financial pressures on contractors and their employees.
The record 35-day government shutdown resulted in missed pay-checks for more than 800,000 government workers and impacted 10,000 companies that hold contracts with federal agencies, according to the Washington Post.
The shutdown was a game-changer, says Lexy Kessler, Partner-in-Charge, Government Contract Services, at Aronson, a participant accounting firm in the Praxity Global Alliance. She explains: “What we are seeing most with our clients is the impact of the current political climate. Government shutdowns are becoming a normal part of business. You can feel the landscape and the mindset shifting. Companies need to adopt business disruption plans similar to those for cyberattacks.”
To help contractors deal with the challenge, Lexy and her team at Aronson have been helping firms address the question of how to deal with these shutdowns, and in particular, how to pay employees and recover dollars they may be due.
Government contractors are also under increasing pressure to deal with the growing cyber threat and related regulations.
“Cybersecurity is a huge deal,” according to Nate Gordon, Partner and head of government accounting practice in the Rocky Mountain region for Plante Moran, another participant firm in Praxity Global Alliance.
Governments around the world are responding to the cyber threat with increased regulation. In the US, for example, the US Department of Defence has employed “very strict” cyber security regulation that impacts anyone that works with them, Nate says, adding: “Government contractors are also required to implement cybersecurity safeguards and controls introduced by the National Institute of Standards and Technology (NIST).”
The NIST measures were introduced to promote the protection and resilience of critical infrastructure and other sectors important to the US economy and national security.
Government contractors in the US face further compliance issues in the shape of two new cybersecurity rules: The FAR rule covers the “Safeguarding of Covered Contractor Information Systems” while the more far-reaching DFARS rule covers “Safeguarding Covered Defense Information and Cyber Incident Reporting”. The latter includes investigation and rapid reporting requirements for breach incidents. It requires compliance with a NIST standard to protect controlled unclassified information in non-federal systems and organisations.
To help contractors deal with this and other complex new regulation, participant firms in Praxity Global Alliance are providing increasingly far-ranging advisory services.
Commenting on Plante Moran’s advisory services, Nate Gordon says: “We have a consulting group that does consultation relating to NIST and cybersecurity. We train our staff on cybersecurity and they determine when IT consultants should come in and help our clients.”
On a broader scale, Plante Moran helps organisations develop a robust plan for preventing cyberattacks from within and outside an organisation and guarantee data protection. The accounting firm also employs specialists in Enterprise Resource Planning to help organisations adopt new technology to manage core business processes more efficiently.
Similarly, Aronson helps contractors deal with anything from national security issues, cyberthreats and regulatory compliance to GSA schedules, internal audit and risk management. “The US Government is pushing the cyberthreat on to contractors to be compliant with current statutory measures and this is a service we can help with,” Lexy explains.
In the US, government contractors also receive support from accounting firms in meeting the requirements of the Defence Contract Audit Agency (DCAA), the body tasked with regulating contracts.
Contractors need to have certified systems and undertake accounting and billing system reviews, but government support is thin on the ground, Nate Gordon says.
“The DCAA is underfunded and understaffed. Therefore, they won’t come out to certify systems so we are doing that for our clients. It’s a huge value add,” he adds.
In the US defence sector, the next big challenge will be making sure contractors are fully up to date with a new €10bn cloud contract called JEDI (Joint Enterprise Defence Infrastructure) which aims to modernize computing infrastructure and combat forces.
“The government is going through a modernisation programme and it’s going to impact our clients,” Nate explains. “We have to keep up to date with cutting edge technology to make sure our clients do not fall behind.”
Due to the nature of government contracting, support is usually at domestic level but there is also an international element. By participating in Praxity Global Alliance, firms like Aronson and Plante Moran are able to share expertise and knowledge to benefit contractors anywhere in the world.
“Internationally, government has become more sophisticated,” Lexy says. “It’s about how you do business regardless of the country you are in and how you anticipate and respond to disruptors like cyberthreats, economic crisis and government shutdowns. There are so many variables now and we are so reliant on technology. If it’s gone for a day, that’s a business loss.”
The support provided by accounting firms in the US is indicative of the expertise being offered by Praxity participant firms across the globe. By focusing on the particular issues companies face in their respective countries and by sharing know-how at international level, accounting firms are going far beyond traditional audit and accounting service to help their clients respond to the challenges of the digital age.
This article was written for Praxity Global Alliance, the world’s largest alliance of independent accounting and consulting firms.