2024 PSC Annual Conference Thought Leadership Compendium

THOUGHT LEADERSHIP COMPENDIUM 2024

SPONSORED BY

loremipsum.pscouncil.org/compendium

TABLE OF CONTENTS AMENTUM

03

Demystifying Artificial Intelligence Understanding Its True Nature and Scope

AMERICAN SYSTEMS

06

Navigating The Risks Of AI Weaponization

APRIO

12

Government Services M&A Activity Remains Strong

BUSINESS MANAGEMENT ASSOCIATES, INC.

17

Shaping Tomorrow: How the Federal Government is Trying to Redefine Federal Workforce Excellence

CACI

20

Protecting our future: Skills-based hiring and the defense industry

DELTEK

25

Cost Allowability: What Government Contractors Need to Know

DLH CORP.

31

Cyber Risk: For Board Directors & C-suite executives, governance cannot be an “IT thing”

JACOBS

36

Reimagined Perspectives Redefining What’s Possible

SABRE SYSTEMS INC.

41

Successfully Navigating the Pitfalls of Artificial Intelligence

UNANET Three Benefits from Streamlining Budgeting, Forecasting and Reporting

USFCR Small Business Plan Good Faith Standards Navigating Federal Subcontracting Requirements

44 48

Demystifying Artificial Intelligence Understanding Its True Nature and Scope

Introduction

As we advance further into the digital age, the realm of Artificial Intelligence (AI) has transitioned from being a mere element of science fiction to a vital part of our everyday life, sparking both fascination and trepidation. This article is part of a comprehensive series designed to illuminate the multifaceted world of AI, cutting through the haze of myths and misconceptions, and offering a clear, precise comprehension of its true essence. Our objective is to present an accurate depiction of AI's capabilities and limitations, to provide insights into the real-world implications of key AI topics, including Deepfakes, Large Language Models, Autonomy and Robotics, and the future of AI. Each article in the series will focus on a specific aspect of AI, offering guidance and principles for its effective and responsible implementation in the modern world.

Transformative Potential of AI

AI's transformative power stems from its unparalleled ability to process and analyze vast amounts of data, far exceeding human capabilities. This rapidly advancing technology is not only creating new opportunities but also giving birth to new industries. Globally, organizations are recognizing AI’s profound potential beyond just enhancing services and streamlining operations. It's reshaping decision-making processes, especially in government sectors, where AI is crucial for efficient public service and robust security. For instance, its predictive analytics capabilities are employed to foresee social events, manage traffic efficiently, and reinforce public safety measures. This expanding role of AI underscores its significance as a key driver of innovation and societal advancement.

As AI continues to evolve, its scope is widening, finding applications across diverse sectors such as healthcare, entertainment, finance, and transportation. Our growing reliance on AI to automate routine tasks, analyze extensive datasets, and rapidly execute complex computations is a testament to its potential to transform industries and everyday life. AI's ability to uncover previously unseen patterns in data makes it a powerful tool for innovation and efficiency, paving the way for groundbreaking advancements in various fields.

Emphasizing AI's national significance, the White House's executive order [1] to expedite AI development and deployment highlights its strategic importance in maintaining global competitiveness, security, and technological leadership. This directive is not merely about technological advancement but underscores the need for a responsible vision for implementing AI; maintaining a security posture that protects sensitive data while being agile enough to allow us to collectively innovate. Additionally, we need a design framework that ensures AI development is aligned with the public interest and democratic values, recognizing AI's potential to influence societal structures and norms.

Key Milestones in AI Evolution

The journey of AI from its beginnings to its current state as a transformative technology illustrates a field that is constantly evolving and expanding its boundaries. The history of AI is not just a technical narrative but also a reflection of our changing understanding of intelligence and cognition. As AI continues to advance, it promises to redefine what is possible in technology, while also posing significant challenges and ethical considerations that

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must be addressed. The development of AI has been marked by several key milestones, each signifying a leap forward in theory, technology, and application.

The Inception and Theoretical Foundations (1940s – 1950s) The journey of AI began in the 1940s with the 'Turing Test' by Alan Turing, a criterion for assessing intelligence in machines. This period also saw the development of the first computers and the theoretical underpinnings of AI, including the creation of artificial neurons by McCulloch and Pitts in 1943. The Dartmouth Conference in 1956, where the term "artificial intelligence" was coined, marks the formal birth of the field.

Logic-Based AI (1950s – 1960s) This era witnessed significant progress in AI, with researchers developing early AI programs like Samuel's checkers program and Newell and Simon's Logic Theorist. There was a growing focus on using logic and rulebased systems to simulate human problem-solving and decision-making processes.

Expert Systems (1970s – 1980s) A major breakthrough in AI was the development of expert systems, which are algorithms that emulate the decision-making ability of a human expert. These systems were particularly successful in fields such as medical diagnosis, geology, and chemistry. The success of expert systems led to a surge in AI research and applications, making AI a commercially viable field.

Probabilistic Reasoning (1980s – 1990s) One limitation of purely logic-based AI is that it cannot accurately describe uncertainty in the world. This limitation led to the integration of probabilistic methods, which can capture event uncertainty in a predictable fashion. This shift was crucial in dealing with uncertainty in real-world environments, leading to more robust AI applications.

The development of algorithms like the Bayesian networks significantly advanced this field.

Machine Learning and Neural Networks (2000s – Present) In the 2000s, the fusion of increased computational power and large datasets reinvigorated interest in neural networks, particularly in machine learning. This era witnessed significant strides in computer vision and natural language processing. AlexNet, a deep neural network that emerged at this time, significantly advanced image classification. Additionally, the development of AlphaGo, renowned for defeating world champion Go player Lee Sedol, showcased AI's advanced strategic capabilities. These advancements highlight machine learning's impact on complex problem-solving and real-world applications like autonomous vehicles.

Current State of AI Technology

AI's evolution mirrors two important concepts: Amara's Law and the Gartner Hype Cycle. Amara's Law posits that we tend to overestimate technology's impact in the short term but underestimate its effect in the long run. The Gartner Hype Cycle visualizes the stages of hype surrounding new technologies: • • • • •

Innovation Trigger: A breakthrough sparks interest and early hype.

Peak of Inflated Expectations: Excitement reaches a fever pitch with potentially unrealistic expectations.

Trough of Disillusionment: The technology fails to live up to the hype, and interest wanes.

Slope of Enlightenment: Practical applications emerge, and the technology's potential becomes clearer.

Plateau of Productivity: Mainstream adoption as benefits solidify.

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Let's examine how these concepts apply to the current AI landscape: 1. Deep Learning Dominance Deep learning has moved beyond the hype stage and into productive use across various industries. Its power in pattern recognition and decision-making is undeniable.

2. Generative AI and Large Language Models (LLMs) LLMs have captured public imagination with their conversational abilities. The recent Sparks paper highlights impressive capabilities but also key limitations, and a follow up paper emphasizing that we're still far from true Artificial General Intelligence (AGI), by making a LLM forget its knowledge about Harry Potter. As pointed out, LLMs are at the peak of inflated expectations. AI's ability to create new content is rapidly advancing. While sparking excitement and innovation, issues of intellectual property, disinformation, and ethical use abound, and are likely to have mild but notable impact on its adoption.

3. AI Democratization The growing accessibility of AI tools lowers the barrier to entry. However, understanding the technology's principles remains crucial for responsible and effective use. The notion of AI Democratization is entering the slope of enlightenment phase of the hype cycle.

4. Focus on Explainability Efforts to make AI decisions more transparent are moving from research to practice. Explainable AI is essential for building trust, especially in high-stakes domains. Explainable AI may still be 2 – 5 years away and is transiting through the trough of disillusionment.

5. AI in Robotics Robotics is steadily progressing towards more flexible and capable robots. AI-powered perception and control systems are enhancing adaptability and dexterity. Drones are becoming essential at the squadron level. While the technology still has 5 – 10 years to go, the promise of AI in robotics is entering the slope of enlightenment.

Conclusion

Although there are possibilities for profound long-term transformation across many different sectors, it's essential to navigate these times with a critical eye, discerning between transformative potential and unrealistic expectations. It is necessary to maintain a sensible approach, getting started with use cases that can take advantage of structured environments capable of processing large amounts of complex data in ways that humans cannot. When adopting AI to handle these use cases, it is important that we don’t lose the nuances of the old process. AI works best today by working alongside of humans, not instead of them. In this way we can enable democratization of use cases, while maintaining low risk to organizations by not over automating to the point that we lose control of the process. Amentum remains excited to keep taking steps to harness to power of AI as we strive to make a smarter, cleaner and safer world.

Contact Us Seth Eaton VP of Technology seth.eaton@amentum.com

Dr. Sam Nazari DARPA Research and Development, ES&T sam.nazari@amentum.com

Dr. Kim Wilcher Mechanical Engineer, ES&T kimberly.wilcher@amentum.com

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Navigating The Risks Of AI Weaponization Authored by: Brian Neely, CIO/CISO AMERICAN SYSTEMS

We know what’s at stake.® 6

The Clock is Ticking...

If you grew up during the Cold War, you probably remember the Doomsday Clock, a vivid symbol of how close humanity is to potentially destroying the world through dangerous technology. At the moment it stands at 90 seconds to midnight—as close as it has ever been since it was initially published in 1947. A surprising addition to this year’s clock is the emergence of AI, and its potential for misuse and even weaponization.

As AI continues to advance and become more pervasive, so do its risks. From mass disinformation campaigns and deepfakes to fully autonomous weapon systems, the convergence of AI, technology and “bad intentions” demands priority attention.

As a government contractor in the defense and intelligence sectors, I’m increasingly concerned about where this path could take us, but I’m also very optimistic that emerging legal, technical and ethics-based solutions can make an impact.

Navigating The Risks Of AI Weaponization | Page 2 of 6

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A New Battlefield is Emerging The biggest challenge comes from the

unmanned robotics fighting one another,

potential reckless use and weaponization

in the skies and on the ground. Not only

of AI by advanced threat actors, from

are we getting a glimpse into the future

organized ideology-based groups to highly

of warfare, but we are also beginning to

resourced nation-states. As AI becomes

see the evolution of weapon strategy, as

more pervasive and technology becomes

an AI arms race with governments and

less expensive, fringe groups will be more

tech companies collide, forging a new

able to combine the two. The lower the

component to conflict, AI and data “arms

barrier to entry, the more open the doors

dealers.”

are to potential misuse.

Generative AI can also be used to

Even in its infancy, AI is already being

effortlessly wage highly impactful

weaponized and integrated into

misinformation campaigns—sway opinions,

inexpensive commercial technologies. For

quickly spread disinformation for political

example, thousands of AI-enabled “swarm

subversion, or even ignite an emerging

drones” are being considered for use in the

flashpoint. Imagine falsified images of

Ukraine conflict to overwhelm key strategic

wartime atrocities or deep-fake videos of

Russian targets. Ukraine may end up being

world leaders calling for new attacks or

an inflection point for modern conflict, as it

retribution.

is quickly becoming a ‘proving ground’ for AI and autonomous technologies. A new era of weapons is beginning to emerge and be used as a force multiplier to conventional warfare. In Ukraine, we’re already seeing

A new era of weapons is beginning to emerge and be used as a force multiplier to conventional warfare.

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Unintended Consequences With the rush to get AI onto the battlefield, short-sighted tactical advantages could lead to spiraling long-term ramifications. AI is already being used to make fully autonomous weapon systems, albeit still on a very limited scale. Eventually, these will become much more advanced and widespread, which brings the significant risk of AI going awry—at the extreme, think of Skynet from the Terminator movies.

Just like algorithmic trading technologies used by high-frequency trading firms can get out of control and create a cascading series of failures, autonomous weapon platforms could get caught in feedback loops and quickly escalate conflicts. AI-versus-AI battles are just around the corner, and if there are no “circuit breakers” in place, human or otherwise, that’s a scary scenario. Integrating safeguards into military AI systems might not be as trivial as implementing Isaac Asimov’s famous three laws of robotics, but developing reliable, effective strategies is a must.

AI-versus-AI battles are just around the corner, and if there are no “circuit breakers” in place, human or otherwise, that’s a scary scenario.

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Safeguards and Standards Proper guardrails and new regulations for responsible AI are going to be critical as we move forward. Keeping humans in any potentially lethal decision-making loop will be critical. Key publications in 2023 are offering a promising start to implementing broader AI safeguards.

Make AI Safe, Secure, and Trustworthy The first, an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, focuses on establishing rigorous standards for managing AI’s potential risk across a wide range of industries, including cybersecurity and national security, while harnessing its benefits. Provisions include protections against using AI to engineer biological weapons and requiring companies to report testing results to the government. The Executive Order’s very first statement— “Artificial intelligence holds extraordinary potential for both promise and peril”— embodies the stark contrast of AI’s potential for both good and bad, and the recognition

trustworthy AI systems.” AI is significantly different from traditional software systems and poses increased and evolving risks. AI systems learn from various sources that can change, sometimes frequently and unexpectedly, which impacts their expected behavior. AI systems are also “sociotechnical” in nature, meaning that they are influenced by societal dynamics and human behavior, and can be highly influenced by computational, systemic and human biases.

International Cooperation is Necessary On the international scale, the Political Declaration on Responsible Military Use of Artificial Intelligence and Autonomy provides a promising framework for the responsible

of the need for AI accountability.

use of AI and autonomy in military contexts.

Foundational to the strategy will be the

on to the declaration, which contains non-

use of the National Institute of Standards

legally binding guidelines to ensure that

and Technology (NIST) AI Risk Management

military AI capabilities will be used consistent

Framework, part of the agency’s Trustworthy

with international humanitarian law. One

and Responsible AI Resource Center,

important provision requires disengaging or

which has been established to “ensure

deactivating systems that exhibit unintended

the development of safe, secure, and

behavior.

As of November 2023, 47 nations had signed

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It can be done.

If this seems overwhelming, keep in mind that we have already come together to limit the proliferation of destructive weapons through multilateral treaties like the Chemical and Biological Weapons Convention. It can be done. But it will take a united effort. We’re at the precipice of something big, along the lines of the invention of gunpowder or nuclear weapons. The more safeguards we can put in place up front, the better for all of us.

About Brian Neely As CIO and CISO for AMERICAN SYSTEMS, Mr. Neely leads the overall vision, planning, and management of technology, information, and cybersecurityrelated resources throughout the enterprise. Mr. Neely began his career at AMERICAN SYSTEMS in 1996 and spent his first 10 years directly supporting the Defense and Intelligence communities.

Mr. Neely was selected as WashingtonExec’s CISO of the Year, named an ExecutiveMosaic Top 10 Federal sector CIO, an InformationWeek 500 winner for Digital Business Leaders and the Innovative Use of Technology, selected to Forbes’ Technology Council, and received a U.S. Presidential Commendation for 9/11 response. Mr. Neely is an alumnus of Virginia Tech (Engineering), Carnegie Mellon (Masters, Information Technology) and the University of Pennsylvania’s Wharton School of Business (Business).

We know what’s at stake.® Founded in 1975, AMERICAN SYSTEMS is a government IT and Engineering solutions provider and one of the top 100 employee-owned companies in the United States, with approximately 1,600 employees nationwide. Based in the Washington, D.C., suburb of Chantilly, VA, the company provides Information Technology, Program Mission Support, Engineering and Analysis, Test & Evaluation, and Training Solutions to DOD, Intel, and civilian government customers. For more information, visit: www.AmericanSystems.com. ©2024 AMERICAN SYSTEMS. All Rights Reserved. The information in this document is proprietary to AMERICAN SYSTEMS. It may not be used, reproduced, disclosed, or exported without the written approval of AMERICAN SYSTEMS.

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Government Services M&A Activity Remains Strong

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Government Services M&A Activity Remains Strong 2023 was a down year for US mergers and acquisitions, with the number of deal announcements decreasing by approximately 25% year-over-year. M&A transactions involving government services targets decreased in 2023, but the drop was more muted relative to the broader M&A market, at 8%. There is no doubt that economic turmoil in the US has impacted M&A deal flow, but with 2023 in the rearview mirror it is also clear that an appetite for M&A persists in the government services space.

Chart 1[i] below tracks quarterly M&A activity (number of announced M&A transactions involving US target companies) within the government services arena. As can be seen in the chart, government services M&A fluctuated in 2020 during the throws of the COVID-19 pandemic, setting the stage for a record year for deals in 2021. Some of that transaction surge was likely impacted by 2020 transactions being pushed to 2021 due to pandemic-related uncertainty. And given 2021’s lively market, some sellers may have accelerated deal timelines, pulling what would have otherwise been 2022 transactions into 2021.

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From early 2022 to mid 2023 quarterly government services M&A announcements declined gradually, before seeing an uptick in the second half of 2023. Trailing (TTM) deal totals were 116, 106, 114 and 121 for the quarters ended Mar-23, Jun-23, Sep-23 and Dec-23, respectively.[ii] At 121 M&A announcements, 2023 government services activity was only 8% lower than 2022 and only 5% lower than 2019 (year before the onset of the COVID-19 pandemic). In contrast, 2023 M&A announcements across all sectors in the US were approximately 25% lower than 2022 and also approximately 25% lower than 2019. Drawing from the pool of 121 government services deals for 2023, Table 1 below profiles a selection of transactions.[iii]

Table 1: Selected 2023 Government Services M&A Transactions Target Financial Advisor

Target Description

Target HQ

Buyer

Alder Technology

G Squared Capital Partners

Provides mission IT services focused on Tier 1-3 networks, systems and cybersecurity solutions for the IC

Oakton, VA

Acclaim Technical Services (Blue Delta Capital Partners portfolio company)

ND

Amyx

ND

Provides application modernization, cybersecurity, systems engineering, financial management and program management support on over 30 federal gov’t programs

Reston, VA

Tetra Tech

$134M

Axim Geospatial

Kipps DeSanto & Company

Provides end-to-end geospatial services and solutions to customers in the gov’t, defense and intelligence, infrastructure, energy, comm’l and environmental sectors

Birmingham, AL

NV5 Global

$141M

Emergent Space Technologies

Houlihan Lokey Capital

Researches, develops, integrates and tests advanced systems and software solutions for civil, military and commercial space missions

Laurel, MD

York Space Systems (AE Industrial Partners portfolio company)

ND

Joint Research and Development

Evergreen Advisors Capital

Provider of T& E services, total life-cycle acquisition support, medical/public health preparedness and science and technology R&D to gov’t customers

Stafford, VA

Broadtree Partners

ND

OnCore Consulting LLC

Clearsight Advisors

Provider of IT consulting services for the public sector in California, including cloud solutions and enterprise architecture

Rancho Cordova, CA

Gcom Software (Sagewind Capital portfolio company)

$175M

OPS Consulting

Capstone Partners

Specialized provider of sensitive intelligence services to the U.S. national security community

Hanover, MD

The Swift Group

ND

Pangiam

Jeffries LLC; Lincoln International

Provider of near-field vision AI technology used by airlines, airports and US gov’t agencies

McLean, VA

BigBear.ai

$70M

Sealing Technologies

Chesapeake Corporate Advisors

Provides cyber and technology services to the DoD and IC including defensive cyber operations, integrated mission-solutions powered by AI and ML and edge computing

Columbia, MD

Parsons

$207M

Solutions By Design II

Monument Capital Partners

Delivers technically innovative, reliable and costeffective solutions to federal customers, specializing in cybersecurity, application development and cloud solutions

Vienna, VA

Evolver/CSS (Akoya Capital portfolio company)

ND

Strategic Technology Consulting

Raymond James Financial

Solutions provider in digital engineering and modelbased systems engineering to comm’l industry customers, U.S. defense agencies and defense prime contractors

Toms River, NJ

Arcfield (Veritas Capitla portfolio company)

ND

XOR Security

Robert W. Baird & Co.

Provider of cybersecurity operations, cybersecurity engineering and VSOC offerings that protect enterprise systems used by federal gov’t and comm’l customers

Falls Church, VA

Agile Defense (Enlightenment Capital portfolio company)

ND

Target

Ent. Value

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Table 1 presents transaction values (i.e., enterprise value) where available, but it does not present the associated valuation multiples (e.g., enterprise value to revenue, enterprise value to EBITDA) since that information was not disclosed. While not necessarily indicative of valuation multiples at play in any of the M&A deals reflected in Chart 1 or listed in Table 1, we can as food for thought consider such valuation metrics for publicly traded firms.[iv] To that end, Chart 2 below presents EBITDA multiples (i.e., enterprise value to TTM EBITDA) for a reference group of six publicly traded government services companies.[v] As shown in Chart 2, throughout the first part of 2023 EBITDA multiples across the reference group ranged from approximately 10.0x to 15.0x, before diverging in the latter part of the year. The median EBITDA multiple for the group ranged from a low of 10.7x to a high of 12.3x over the course of the year. At year-end the median multiple was 11.4x.

Circling back to 2021 government services M&A activity, what were the factors (in addition to pent up demand) contributing to a robust M&A environment? One likely factor was a desire by wouldbe acquirers to build or bolster capabilities around federal government initiatives in areas such as legacy IT system modernization, cloud migration, and machine learning. Other factors at play in 2021 included but were not limited to: increasing valuations; low interest rates; SPAC popularity; available cash on balance sheets; and increases in private equity fundraising.

2022 and 2023, however, saw a variety of factors creating uncertainty on the M&A front. These included: Variables such as these, in addition to the size and scope of federal agency budgets, will continue to impact government • Rising inflation

• Volatility in the public capital markets

• Fears of recession

• Federal government shutdown drama

• Russia-Ukraine war

• Regulatory/antitrust considerations

• Federal Reserve actions to increase interest rates

• Israel-Hamas war

contractors to varying degrees in 2024. Rising inflation and interest rate hikes are of course linked. In an effort to tame inflation, the Federal Reserve increased its federal funds target rate throughout 2022 and the first half of 2023 (see Chart 3 below).[vi] This followed the federal funds rate having been dropped close to 0% in 2020 during the pandemic.

The Fed’s most recent rate hike was nearly six months ago, at which point the federal funds rate was raised to a range between 5.25% and 5.50%.

Rising interest rates are particularly relevant to M&A deal flow. As the cost of debt rises, acquirers that tend to use leverage in their deals may hold back. On the flipside, strategic acquirers with significant cash on their balance sheets may be inclined to seize opportunities. With inflation landing in a more comfortable zone for the Fed, many expect the federal funds target rate to decrease in 2024,[vii] which would provide a boost to deal financing activity.

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Defense spending, as ever, will be a driving force behind both organic and inorganic growth for federal contractors. While the potential for cuts does exist, the expectation is that US defense budgets will continue to grow, given global prioritization of national security and bipartisan support for defense. There are risks to that expectation, however, including a volatile political outlook in the near-term and an election year and debt ceiling debate.[viii] Government contractors have not been immune to prevailing economic challenges (geopolitical unrest, hostile political environment and unclear outlook to name a few), but deal volumes remained relatively steady in 2023. With inflation slowing, interest rates levelling off and government shutdown jitters subsiding, many are cautiously optimistic about government services M&A levels for 2024. Regardless, profitable target companies that have been awarded contracts on highpriority programs and possess distinguished workforces, unique technological discriminators, and a majority of prime full & open contracts in backlog, will continue to transact.

Aprio provides M&A-related services to middle market government contractors and private equity groups. This includes Transaction Advisory, Business Valuation, Technical Accounting Consulting, and Forensic Accounting. Whether it’s pre-acquisition financial due diligence, post-acquisition purchase price allocation analyses, navigating the GAAP intricacies of business combination accounting, or assisting in the resolution of a post-acquisition dispute, Aprio can help you succeed in 2024 and beyond. Schedule a consultation today.

To learn more about our Government Contracting practice, contact us today.

[i] The data supporting this chart was obtained from S&P Capital IQ. [ii] These figures include only transactions that were publicly disclosed. The actual number of government services M&A transactions is higher, given that some deals are not made public. [iii] Information obtained from S&P Capital IQ, press releases, and SEC filings. [iv] A variety of factors can influence the implied valuation multiple reported for any given M&A transaction, including but not limited to the type of buyer involved and the target company’s size, growth prospects, profitability, and capabilities. Public company valuation multiples, while readily available, reflect a different level of value from change-of-control transaction implied valuation multiples, and may be enhanced by factors including but not limited to relative size, diversification, and access to capital. [v] Based on a reference group of publicly traded government services companies: ICFI, CACI, LDOS, PSN, SAIC, VVX. Data obtained from S&P Capital IQ [vi] Data points in the chart represent the upper end of the Fed’s target range. [vii] See, for example, Americans Begin to Believe Inflation is Cooling, Wall Street Journal, January 11, 2024. [viii] US Defense: National security threat will outweigh deficit, but not without politics-driven volatility, UBS Global Research and Evidence Lab, October 10, 2023.

William Foote Advisory Services Partner | Transaction Advisory William Foote is a Business Advisory services partner at Aprio. As a CPA with nearly three decades of assurance and financial consulting experience, he collaborates with middlemarket companies, entrepreneurs, private equity groups, investment bankers, lenders and attorneys to achieve successful client outcomes. His specialties include financial due diligence, complex valuation projects, financial disputes and accounting investigations.

APRIO, the Aprio pentagonal pinwheel logo and “PASSIONATE FOR WHAT’S NEXT,” are registered marks of Aprio, LLP. Aprio, LLP © 2024. All rights reserved.

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SHAPING TOMORROW: How the Federal Government is Trying to Redefine Federal Workforce Excellence We all want an efficient and effective workforce to operation the machinery of government. We all know the government struggles to recruit and retain the workforce it needs to accomplish its complex and diverse missions. Even the acquisition workforce struggles to meet the enormous demands it faces. At this point in time, there is an opportunity to support a variety of efforts designed to address the government’s human capital challenges.

As the federal government navigates the complexities of the 21st century, the Federal Government is undertaking several innovative initiatives to help support agencies’ efforts to hire and retain the skilled workforce necessary to tackle the challenges of the future. These initiatives underscore a strategic shift towards creating a more dynamic, inclusive, and efficient federal workforce, prepared to meet the evolving needs of the American public.

Business Management Associates (BMA) is keenly aware of these changes and their implications for the future of federal employment, and we believe everyone in the federal contracting community should be interested in ensuring the government is able to quickly hire and retain the best talent available in the United States. In this article, we profile three recent initiatives we think are particularly important.

WWW.BIZMANAGERS.COM

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OPM Workforce of the Future Playbook: Building Blocks for Transformation The "Workforce of the Future" Playbook is a cornerstone effort by OPM to usher in a new era of federal employment, characterized by inclusivity, agility, engagement, and the requisite skills for mission delivery. This playbook outlines strategic actions across five domains: policy and resources, research and evaluation, training and technical assistance, data analytics, and stakeholder engagement. Key elements of this playbook that agencies can utilize include: Strategic Workforce Planning: Emphasizing the need for foresight and a proactive approach to workforce development, the playbook advocates for sophisticated predictive analytics and strategic foresight methods to anticipate future skill requirements.

Skills-Based Hiring and Pooled Hiring: The playbook recommends transitioning toward skillsbased hiring and leveraging pooled hiring/shared certificates to streamline the recruitment process and ensure a match between job requirements and candidates' skills. OPM overhauled the front door for recruiting in the federal government (USAJobs.gov) last December to give increased functionality and ability for agencies to take

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advantage of these recommended hiring techniques. Initial feedback on these changes by participating agencies in the initial pilot was very positive, with many participants citing the new functionality as critical to being able to hire candidates more quickly.

•

The Administration intends to hire 100 AI professionals to promote the trustworthy and safe use of AI as part of the National AI Talent Surge created by Executive Order 14110 by this summer. The Administration recently hosted career fairs for AI roles across the Federal Government to help achieve this goal.

Integration of AI Technology: Acknowledging the transformative potential of artificial intelligence (AI), the playbook encourages agencies to integrate AI into HR processes, from recruitment to workforce planning, enhancing efficiency and decisionmaking.

•

OPM issued guidance on pay and leave flexibilities for AI roles to improve retention and emphasize the importance of AI talent across the Federal Government.

•

The Fiscal Year 2025 Budget proposes an additional $5 million to expand GSA’s government-wide AI training program, which last year had over 4,800 participants from across 78 Federal agencies.

This comprehensive guide serves as a blueprint for agencies to modernize employment practices, making the federal government a competitive and attractive employer in today's rapidly changing job market.

Upholding Civil Service Protections and Merit System Principles In reaffirming the foundation of the American civil service, OPM's recently released final rule on civil service protections and merit system principles underscores the administration's commitment to a nonpartisan, merit-based federal workforce. The three main principals of the administration’s approach outlined in this rule include: 1) Protection of Civil Service Status: The rule clarifies that the civil service protections and status accrued by an employee cannot be diminished involuntarily, safeguarding employees against politically motivated changes in their employment status.

Growing the AI Workforce Of course, in order to harness the benefits of AI, the government needs the right talent. The challenge of competing with the private sector for AI and other tech talent is enormous. Recent government-wide guidance directs agencies to expand and upskill their AI talent. And they are responding by aggressively strengthening their workforces to advance AI risk management, innovation, and governance. Among the ambitious activities in this arena:

WWW.BIZMANAGERS.COM

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2) Clarification of Noncareer Positions: It precisely defines "confidential, policy determining, policymaking, or policyadvocating" positions to prevent the misapplication of this designation to career civil servants, ensuring that decisions regarding hiring and firing are based on merit and not political considerations.

3) Procedural Safeguards: The introduction of procedural requirements for movements within the civil service adds transparency and provides federal employees with avenues for appeal, enhancing the integrity of the civil service system.

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This new rule, while reversible by a future administration, represents a significant step toward reinforcing the principles that have governed the American civil service for over a century, ensuring that the federal workforce remains focused on serving the public interest, not political motivations.

It also helps create a foundation for future civil servants studying public administration, public policy, policy analysis, and other disciplines essential to government operations that there will be opportunities to build expertise and guide government programs over the long term.

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Enhancing Recruitment and Reten0on: The plan outlines comprehensive strategies to a4ract, hire, and retain military-connected talent, recognizing the skills and diversity they bring to the federal workforce.

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Iden0fying and Elimina0ng Barriers: It mandates agencies to review and amend policies and prac@ces that hinder the employment and advancement of military-connected individuals, fostering a more inclusive work environment.

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Promo0ng Employment Opportuni0es: Through ini@a@ves like increasing Federal job pos@ngs u@lizing the Military Spouse Noncompe@@ve Appointment Authority and seGng governmentwide standards for the Domes@c Employee Teleworking Overseas program, the plan seeks to expand job opportuni@es and support for military families.

This strategic plan not only acknowledges the sacrifices of military families but also leverages their unique experiences and skills to enrich the federal workforce, enhancing the government's capacity to serve the nation effectively.

Government-wide Plan for MilitaryConnected Families The Government-Wide Military-Connected Strategic Plan for Fiscal Years 2024 – 2028 addresses the unique challenges and barriers faced by militaryconnected spouses, caregivers, and survivors in federal employment. This strategic plan aims to make the federal government an employer of choice for military-connected individuals by:

LaJuanna Russell, CEO

These initiatives represent transformative steps toward a more inclusive, agile, and skilled federal workforce that can deliver support and unbiased, evidence-based expertise to federal leaders. BMA is hopeful these policy initiatives will allow the federal government to be well-positioned to attract and retain the talent necessary to navigate the challenges of the future. BMA is committed to supporting these efforts, offering our expertise to help federal agencies implement these innovative strategies and contribute to a more efficient and effective federal government.

About BMA: For almost two decades, BMA has been helping organizations change, evolve, and transform. Our experienced, dedicated teams bring in-depth understanding of government ecosystems and excel at elevating organizations with human capital management, dynamic process transformation, and cutting-edge technology solutions. We've been in your shoes and know how to drive mission outcomes in the public sector.

WWW.BIZMANAGERS.COM

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BMACOMMUNICATIONS@BIZMANAGERS.COM

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Protecting our future: Skills-based hiring and the defense industry

W HITEPA PER April 2024

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Overview Well-paying careers. Work that makes a difference. Roles for nearly every type of professional skill.

On paper, defense industry positions should fill themselves. Yet finding, hiring, and retaining the right talent in this sector continues to be incredibly difficult due to the demand for highly cleared personnel outpacing the supply. To ensure our long-term national security and the ability of industry to deliver results, it is imperative that we develop new ways to widen the defense sector talent pool.

Skills-based hiring—the practice of evaluating talent based on skills and experience rather than education—shows strong promise as a solution. It provides better transition opportunities for veterans and opens avenues for a generation of young talent that has grown up using and learning to understand technology in new ways. In addition to providing opportunities to those in their communities who are looking to grow their careers, organizations using this approach are benefiting from an influx of upcoming and experienced talent.

In the government and defense sectors, where hiring can be especially difficult, the potential benefits of adopting such an approach hold a special significance. Further, those who do not pursue the benefits may risk falling behind their peers in their ability to find and field the talent needed to win contracts and support our government’s goals.

For example, to strengthen our cybersecurity posture, the White House and the Office of the National Cyber Director have launched a skills-based hiring campaign—and specifically noted that it expected to work with industry to eliminate unnecessary barriers such as four-year degrees.

Making this vision a reality, however, will require several shifts, including within leader mindsets. That’s why it is important to understand skills-based hiring and the potential benefits it could bring to industry organizations and our nation’s security.

“We’re tackling how the federal government can hire cyber talent quickly, bring in diverse talent, and remove barriers to working in cyber on federal contracts.”

– Harry Coker, Jr., National Cyber Director

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Skills-based versus education-based hiring Talent acquisition approaches for professional fields traditionally use education as a baseline measurement for applicants, then consider experience and skills as differentiators to help downselect a preferred pool of final candidates. However, this often means a significant portion of qualified talent is never even considered: those without four-year degrees or other certificates who possess the skills and experience required to do the work.

Such talent often won’t apply, even when qualified, if a job posting includes a degree or certificate requirement. Those who still apply are nearly always at a disadvantage compared with applicants who meet the degree requirements, regardless of actual experience. Rigid degree-based labor category descriptions put in place by the acquisition community serve as an even stronger barrier against considering these potentially worthy candidates.

Skills-based hiring takes a different approach. Hiring managers identify and evaluate a candidate’s skills and experience to create a measurable baseline, then use it to gauge the best fits for the required roles and responsibilities.

For example, take two applicants for an entry-level software engineer role. Candidate A has recently completed a computer engineering degree but has little professional experience and limited college experiential learning activities. Candidate B participated in youth STEM club competitions, volunteered in the local code hack-a-thon four times a year, and has recently built and published a secure, mobile app. Candidate B doesn’t qualify under the opening’s labor category and would need to attend equivalency courses for two years to be eligible to charge the role to the contract.

Who should you hire? For an organization with multiple roles to fill, the answer might be both. Yet most organizations use a system that presents numerous challenges for Candidate B to be considered. Skills-based hiring has the potential to remove those obstacles and provide hiring managers with better insight into if both, either, or even neither candidate is an appropriate hire. Further, it could help make a hidden pool of talent more visible to those working to fill roles within their organization.

New approaches to defense sector hiring The national security job market remains strong, with a number of roles ready to be filled by a skilled professional. However, hiring in the sector has traditionally been difficult and is even more so in our changing post-COVID world.

CACI has taken a variety of different approaches to mitigate talent challenges in this market, including identifying ways to broaden the talent pool and increase the use of skills-based hiring techniques. In some cases, the company has led these efforts; however, in many cases, these strategies require current or future customer partnership. Here are a few examples: • Including internships and other early-career opportunities on programs • Providing visibility about careers in national security to the next generation • Adding or adjusting LCAT requirements to intentionally plan for opportunities, removing unnecessary education and time-in-grade experience requirements • Incorporating skills-based hiring strategies into RFPs and future customer strategic workforce planning • Conducting market analysis of competitive pay ranges, including experiential qualifications and increasing rates where needed • Allowing work to be done in alternate SCIF locations to expand the available talent pool, and reclassifying work that can be done outside of the SCIF to allow for potential remote opportunities • Participating in the Skillbridge program to nurture and pipeline future talent to support DOD and intelligence community missions

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Ensuring the right hire LinkedIn, the social media website for professionals, has reported that job postings that advertise desired skills instead of education requirements see more than a 20% higher number of applicants. However, the potential benefits of skills-based hiring go beyond the widening of the talent pool. It also helps organizations avoid mis-hiring. The wrong hire can be costly in several ways, affecting everything from finances to processes to team culture and employee satisfaction, the negative effects of which can range from a blip to the long term.

The empirical evidence is piling up. Many companies that have implemented a skills-based approach see less of this issue: 92.5% of those surveyed by TestGorilla reported a reduction in their mis-hiring rate. There is also evidence it is leading to a brighter future for both skill-based hires and their organizations. A recent BCG

and Lightcast report showed that skill-based hires are promoted at about the same rate as education-based hires. Studies also show it can help create a more diverse and effective workforce due to the diversity of thought and perspectives brought by those with different backgrounds.

There are also subjective reasons to use the approach: Several leaders surveyed in the BCG and Lightcast report also mentioned their skill-based hires seemed to generally work harder and be more motivated.

Meanwhile, the degree-based candidate may be academically qualified but with no application of their craft it might be unclear if they have the passion and engagement needed to succeed in our national security industry.

Streamlining requirements and creating opportunities Implementing skills-based hiring techniques within a talent acquisition strategy is becoming an imperative, especially for those in the government sector, and is emerging as a potential differentiator compared to peers in finding and hiring skilled talent. However, the customer community is lagging in implementing more flexible labor-category strategies that support employment of these qualified candidates. A partnering approach is needed to make an immediate and full transition. Techniques to transition to skill-based hiring can include: • Collaborating with customers to analyze and identify which roles might be filled based on skill equivalencies instead of education requirements • Educating internal and external leaders to collaborate, develop, and embrace a government push toward skill-based hiring and the need to shift mindsets about four-year degree requirements • Establishing internships and other programs that provide experiential skills and help grow a new generation of local talent • Working to remove the red tape involved with the transition of government employees to industry roles, especially regarding the transfer of existing clearances

• Building connections with community colleges and other organizations that provide two-year degrees and hands-on skill building and experiential learning opportunities • Investing in programs that help veterans transition the skills they learned on the job to the defense and intelligence workforce • Creating internal training programs for skill-based hires so they can begin their new roles with the support, training, and opportunities they need to build a successful career

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Summary Valuing skills and experience as highly as education can help talent acquisition professionals broaden the recruiting landscape and lead to programs increasing their talent pool. It could help remove hiring challenges, especially in government sectors. However, government and industry must partner together to remove the hiring barriers faced by experienced and skilled workers who do not have degrees.

We need to partner together to depart from the established process used by most organizations to evaluate and hire talent. We need to partner together to depart from the traditional government degree/experience labor category approach. Doing so will not only increase the number of viable candidates but will decrease the number of mis-hires while creating innovative and diverse teams to tackle the next generation of challenges. Let’s seize the opportunity to reshape the future by utilizing a skills-based hiring approach across industry and government to find, engage and employ the right talent.

About CACI At CACI International Inc (NYSE: CACI), our 23,000 talented and dynamic employees are ever vigilant in delivering distinctive expertise and differentiated technology to meet our customers’ greatest challenges in national security and government modernization. We are a company of good character, relentless innovation, and long-standing excellence. Our culture drives our success and earns us recognition as a Fortune World’s Most Admired Company. CACI is a member of the Fortune 1000 Largest Companies, the Russell 1000 Index, and the S&P MidCap 400 Index. For more information, visit us at caci.com.

© 2024 CACI International Inc. All Rights Reserved.

Glenn Kurowski Senior Vice President and Chief Technology Officer

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GUIDE

Cost Allowability: What Government Contractors Need to Know Cost allowability comes into play across various contract types, extending beyond just costplus contracts. In government contracting, firms frequently secure fixed-price contracts where a predetermined fee is established for their services. In these scenarios, tracking allowable expenses becomes imperative despite the fixed pricing, as it directly influences profit margins and project profitability. To safeguard their margins and uphold profitability in these engagements, contractors must diligently manage costs, preventing any overruns independently of the fixed contract price.

TABLE OF CONTENTS 2

What Constitutes an Allowable Cost?

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Best Practices for Government Contractors

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Navigate the Maze of Cost Allowability with Deltek!

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But not every contract is fixed-price. In some instances, contractors enter cost-reimbursement contracts — engagements where the government reimburses the contractor for allowable costs incurred plus a fee. Since such contracts shift the burden of cost performance to the government, many contractors get excited thinking they have one less thing to worry about.

Yet, cost-reimbursement contracts have their own set of challenges. Chief among them? Cost allowability, or the idea that contractors only bill the government for expenses that are reasonable, allocable and compliant.

If you’re looking to learn more about cost allowability and what you need to do to ensure you’re only billing the government the proper amount, you’ve come to the right place. At the end of this guide, you’ll know what an allowable cost is, what a DCAA audit looks like and best practices to follow to meet compliance.

What Constitutes an Allowable Cost?

In the context of government contracting, an allowable cost is an expense that is considered reasonable, allocable, and allowable, i.e., compliant with the terms and conditions of the contract, as well as relevant regulations and guidelines. Simply put, allowable costs are expenses that a contractor can expect to be reimbursed for by the government as part of the contract agreement.

The cost principles governing how contracts, subcontracts, and modifications are priced are in FAR Part 31.

WHAT IS ALLOWABILITY? » Contract adherence. Allowable costs must be allocable, reasonable, and in alignment with the terms and conditions specified in the government contract.

» Necessary. Allowable costs must be necessary for the performance of the contract. They must also be ordinary within the industry, directly aligning with contractual requirements and customary business practices.

WHAT IS ALLOCABILITY? » Direct association. Allowable costs must have a direct association with the specific project for which they are incurred, ensuring that expenses are appropriately assigned to relevant work. » Fair and equitable allocation. Indirect costs — like rent, insurance, maintenance, and repairs — must be allocated fairly and equitably among different contracts or activities to prevent arbitrary distribution and ensure fairness across projects. » Consistent allocation methods. Contractors need to use consistent and logical methods for allocating costs to maintain consistency, avoid discrepancies, and promote accurate cost assignments.

WHAT IS REASONABLENESS? » Prudent decision-making. Reasonable costs reflect the decisions a rational person would make in similar circumstances, emphasizing the importance of sound judgment in cost management. » Market comparison. Reasonableness is determined by comparing costs to market prices, industry standards and benchmarks, ensuring expenses stay within acceptable ranges. » Cost-effective investments. Reasonable costs demonstrate a cost-effective approach to business where incurred expenses are proportional to contract benefits.

If a contractor’s accounting practices are inconsistent with cost principles, any costs above what should be charged under FAR 31.2 are unallowable.

» Regulatory compliance. Costs must comply with relevant regulations, such as what’s outlined in FAR Part 30 and FAR Part 31, to meet the criteria for allowability.

They must also meet any relevant standards from the Cost Accounting Standards (CAS) Board, generally accepted account principles (GAAP), and practices appropriate to the specific circumstances of the engagement.

Cost Allowability: What Government Contractors Need to Know

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DO YOU HAVE DOCUMENTATION?

To ensure compliance, contractors are responsible for accounting for costs appropriately. They also must maintain comprehensive records, including support documentation that demonstrates the costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles. You can have allowable costs, but the government will likely deem them unallowable if you don’t have the documentation to back them up. For this reason, it’s important to put procedures in place to document costs and make sure you’re not missing out on reimbursement you’d otherwise be entitled to.

WHAT ARE EXPRESSLY UNALLOWABLE COSTS? Certain expenses are never allowable under any circumstances. These are called expressly unallowable costs, which refer to specific expenses that are explicitly identified as non-reimbursable under government contracts. Contractors are prohibited from billing the government for these costs; attempting to do so can lead to severe consequences, including financial penalties, contract disputes and potentially even legal action.

Expressly unallowable costs include:

WHO IS RESPONSIBLE FOR DETERMINING WHICH COSTS ARE ALLOWABLE? In the event a contracting officer challenges a cost, the burden is placed on the contractor to explain why a cost is reasonable. This is why it’s important to ensure you have robust documentation and a clear policy of what costs are being charged to the government and how they’re being incurred. In the event you lack documentation, the contracting officer may decide to disallow all or part of a claim cost. In addition to maintaining records, you must ensure that your employees and other stakeholders consistently follow those policies to maintain compliance.

In contract disputes, the Defense Contract Audit Agency (DCAA) is ultimately responsible for determining whether a cost is allowable. The government has the burden to demonstrate a contractor’s interpretation of a cost was unreasonable, but if they succeed, they can levy penalties on the contractor.

WHAT ARE THE PENALTIES FOR UNALLOWABLE COSTS? Contractors must not include any unallowable costs in any proposal, as per FAR. Contractors that include unallowable costs in a proposal may be subject to penalties equal to: » The amount of the disallowed cost allocated to the affected contract; plus » Simple interest based on the amount the contract was paid in excess of how much they were owed using an interest rate set by the Secretary of the Treasury.

In the event a contracting officer finds that the contractor submitted a cost previously determined to be unallowed for that contractor, the government can assess a penalty equal to two times the amount of the disallowed cost allocated to the affected contract. In certain circumstances, however, the contracting officer may decide to waive such penalties.

» Entertainment expenses » Alcoholic beverage costs » Lobbying costs » Fines and penalties » Contributions and donations (e.g., to political campaigns)

Cost Allowability: What Government Contractors Need to Know

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Should you find yourself under the microscope of an audit, it’s important to maintain open lines of communication with the DCAA, cooperate fully, be responsive and produce any information the agency requests in a timely and accurate manner. This is where an Enterprise Resource Planning (ERP) system purpose-built for government contractors can support your business.

ERP systems are comprehensive software solutions that integrate various business processes throughout the project lifecycle, including finance, human resources and procurement. In government contracting, ERP systems contribute to tracking cost allowability contracts in several ways, including expense tracking and compliance, realtime financial visibility, automated workflows and data integration, to name a few.

WHAT DOES A DCAA AUDIT LOOK LIKE? After you receive an audit notification, the DCAA audit process commences. Once that happens, the agency will look at all of the representations you’ve made on your proposals. After reviewing the audit plan and objectives, the DCAA will: » Request initial documentation relating to cost allowability, including financial records, receipts, cost proposals and contracts » Conduct an on-site examination of accounting systems, policies and practices to assess compliance » Interview key personnel to discuss accounting practices, cost allocation methods and other relevant information » Send a preliminary report that outlines observations, areas of concern and requests for additional information » Give you time to respond to their findings and provide clarifications and additional documentation » Discuss their final findings, any proposed adjustments, and potential areas for improvement in cost accounting practices » Finalize a formal audit report » Work with you to address any questioned costs, implement corrective actions, and resolve issues identified during the audit

Best Practices for Government Contractors While you can’t necessarily prevent the DCAA from scrutinizing your proposals, you can put yourself in the best position to meet compliance by following best practices.

1

Adopt compliant policies and stick to them

First things first: It’s ideal to establish robust guidelines, policies and procedures to increase the likelihood that you’re making decisions that align with FAR Part 30 and FAR Part 31. Doing so can create a foundation for consistently meeting the criteria of reasonable, allocable and allowable costs. This proactive approach enhances transparency and mitigates risks while helping establish a culture of compliance within the organization. An ERP system underscores the foundation for tracking data that government contractors require to meet various regulations.

2

Train and retain your team

You might have the best guidelines, policies, and procedures in the world, but if you’re employees aren’t following them consistently, what’s the point? Ensure you’re setting aside enough time to train your team periodically to ensure everyone knows what allowable

Cost Allowability: What Government Contractors Need to Know

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costs are. Spend time updating them regularly so that the material is fresh in their minds.

3

Maintain relevant documentation

Under cost allowability rules, the government has six years to make the claim for a cost after it’s been incurred. A few years ago, the DCAA had a huge backlog; in 2020, the agency was still auditing for costs incurred in 2014.

For this reason, it’s critical to maintain comprehensive documentation, including detailed records, invoices and supporting documents, to serve as a tangible trail of incurred expenses, validating the reasonableness and allocability of costs. In addition to helping you respond to audits and reviews, this also acts as a defense against disputes and claims.

PRO TIP: Make sure that all documentation is readily available so you can surface data quickly in the event you need it.

before costs are incurred, establishes clear guidelines on how certain costs will be treated and reimbursed under government contracts. It’s a good tool that can take away some uncertainty from contracting engagements.

Conduct internal audits

By proactively engaging with the contracting officer to establish clear guidelines on allowable costs, you set the stage for a productive engagement. Advance agreements provide a roadmap for cost treatment, reducing uncertainties and potential disputes. By seeking agreement in advance, contractors can enhance compliance, streamline processes and ensure alignment with government expectations.

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By spot-checking your costs periodically and conducting internal audits, you can get ahead of what the DCAA would see in the event they scrutinize your books. Such audits proactively assess financial processes, expense documentation, and adherence to regulatory guidelines.

As a result, you can identify and rectify potential issues before external audits occur.

Such an approach helps you minimize risks, ensuring that allowable costs are accurately identified while fostering continuous improvement in compliance efforts.

5

Explore advance agreements

In government contracting, an advance agreement is a pre-negotiated understanding between a contractor and the contracting officer regarding specific cost elements or accounting practices. This agreement, often reached

6

Remember directly associated costs

To ensure compliance, contractors need to recognize and appropriately allocate expenses directly linked to a specific project or contract. Things like alcohol, entertainment, and employee morale-building exercises can be tax-deductible in certain circumstances. But since they are not directly associated with an award, the taxpayer won’t foot the bill — even if your business can write them off for tax purposes. By ensuring you’re only submitting directly associated costs, you can reduce the chances you incur any penalties.

Cost Allowability: What Government Contractors Need to Know

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Navigate the Maze of Cost Allowability with Deltek!

As you can see, cost-allowability rules are complex. It takes a lot of work to ensure you follow cost principles and comply with relevant regulations.

Even so, that work is necessary. After all, you don’t want to end up in a situation where you have to repay the government for costs that weren’t allowable and cover any associated fines or penalties.

Before entering into a cost-reimbursement contract, make sure you have a solid understanding of all relevant regulations. Engaging with auditors, internal and external accountants and counsel — and making sure everyone’s on the same page about what costs are being incurred and what policies and procedures are being followed — is a great way to prepare.

For more information on key regulations for government contractors and how Deltek’s Costpoint supports compliance with them,

check out the Guide to Government Contracting.

Better software means better projects. Deltek is the leading global provider of enterprise software and information solutions for project-based businesses. More than 30,000 organizations and millions of users in over 80 countries around the world rely on Deltek for superior levels of project intelligence, management and collaboration. Our industry-focused expertise powers project success by helping firms achieve performance that maximizes productivity and revenue. deltek.com © Deltek, Inc. All rights reserved. All referenced trademarks are the property of their respective owners. REV-031924 - 29023

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Your Mission is Our Passion.

CYBER RISK: For Board Directors & C-suite executives, governance cannot be an “IT thing”

Contact Us Info@DLHcorp.com

@DLH-corporation

DLHcorp.com

@DLH_corp @DLHcorp

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Cyber risk: For Board Directors & C-suite executives, governance cannot be an “IT thing”

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Cora Carmody DLH Strategic Advisor, Technology The National Association of Corporate Directors’ (NACD) “NACD Director’s Handbook on Cyber-Risk Oversight” is a must read for the C-suite and board directors, particularly those who work for public and private companies serving federal civilian agencies, the Department of Defense, and the Intelligence Community. The 2023 edition handbook represents a collaboration between the NACD and the Internet Security Alliance, with contributions from CISA (the Cybersecurity and Infrastructure Security Agency) and other federal, industry and educational organizations.

I serve as a Strategic Advisor to DLH, providing insight to executive management on driving enterprise architecture optimization and efficiencies, enhancing cybersecurity strategies, and developing technology-based value propositions for organic growth. I served as a Chief Information Officer (CIO) in the government contracting space for over 20 years. I am responsible for consulting and strategy on significant mission critical technology across the enterprise and its security. As the years go on, the nature of the threats we face continues to evolve, but the basic need to protect the enterprise and all stakeholders does not.

The threat landscape agencies like Health and Human Services and the Veterans Administration, and major commercial industries, face is bigger and more complex than ever before. To say that every aspect of our lives is driven by the cyber world is stating the obvious.

The crippling disruptors of technology, disabling industries and public and private, and growing in new ways and with new devious motives. ‘Bad guys’ are becoming more adept at using cyber as a weapon; both in seemingly harmless ways such as unseen infiltrations, and in blatant, public approaches endangering privacy, reputation, brand, stock price, financials, systems and services, corporate growth, and physical well-being.

Technology enables our everyday life and is such a pervasive part of our day-to-day that many individuals click without thinking, use public wifi without thinking, and buy and install the latest AI enabled products 32

Cyber risk: For Board Directors & C-suite executives, governance cannot be an “IT thing”

3

and services without thinking of inherent risks. If it weren’t for human error or deceit, a CIO’s job would be easy! But as the malevolence in the world grows at a rate faster than the ignorance declines, we must continue to strengthen our defenses. We can no longer just assume that it’s the CIO’s job and hope for the best. In the foreword to the NACD Handbook, Jen Easterly, Director of CISA, writes “We need a new model of sustainable cybersecurity. One that starts with a commitment at the board level to incentivize a culture of corporate cyber responsibility in which managing cyber risk is treated as a fundamental matter of good governance and good corporate citizenship.” The company’s Board and executive officers must understand the core principles of cybersecurity, both for the corporation and its customers. Government contractors, in particular must have the vision, discipline, and accountability to protect the government agencies and commands they serve, as their constituents are American citizens who depend upon consistent and resilient technology-enabled services.

Our cyber-risk posture must be formulated with the entire corporate ecosystem in mind. At DLH, we strive to maintain a culture of corporate cybersecurity responsibility across our employee base, c-suite executive team, and Board. Our Board maintains a Cybersecurity, Technology, and Biomedical Research Committee with a charter to oversee and advise the Board and management on matters involving the company’s overall strategic direction and significant business risks and opportunities in the areas of technology and information security. Since risk extends beyond IT and cyber security professionals, our education and communication frameworks must also extend beyond them. What our employees do, how our supply chains function, and how our customers interact with our systems affect our planning and response.

Any vulnerability or breach can impact corporate and government organizations large and small, leading to severe personal, professional, financial, legal, and reputational ramifications.

When evaluating cyber-risk procedures, any enterprise must take stock of its most valuable assets. What are they? Where are they? What is the predominant risk and how are these assets protected? Compliance regulations will of course vary by industry, company size, location, and posture. Boards of Directors and corporate executives need to be aware of regulations, government policies, and even political factors that affect their businesses and keep track of them as they change. Operators must also be conscious of what customer data is entrusted to our companies, either at rest or in transit. Customers may be bound by regulations that the company’s board directors should be aware of and that will broadly impact their stakeholders.

For example, an engineering company that has customers in the aviation, healthcare, and transportation spaces and other public and private industries should be very familiar with the guidance of the NIST Cyber Security Framework (CSF) for Critical Infrastructure. A private or publicly held company whose customers are public companies or government agencies should be aware that SEC guidance on cybersecurity disclosures could impact them in many ways, including incident response planning. The SEC guidance provides valuable input to a company’s approach to communicating with their investors, employee owners, etc.

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Cyber risk: For Board Directors & C-suite executives, governance cannot be an “IT thing”

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Of course, merely fulfilling compliance obligations does not mean that everything is secure.

Some compliance standards direct actions that are outside of the traditional cybersecurity remit; the NIST CSF has extensive material within within the core functions that speak to enterprise architecture and IT asset management.

GOVERN - IDENTIFY - PROTECT - DETECT - RESPOND - RECOVER

Security professionals and corporate officers need to understand that protection against insider threats (caused through ignorance or malevolence) is not as well documented in compliance regulations but can produce egregious results if not included in cybersecurity planning.

As executives and Board members, we need to ensure that internal policies and procedures manage cyber risk transparently and in accordance with the ingrained and unified risk appetite of the company. We need to document Board responsibilities in committee charters and ensure that the topic receives adequate airtime on meeting agendas. Cyber-security needs to be a pervasive and highly visible part of systems, processes, and culture from end to end.

Governance officials must ask about and regularly review the company’s working relationships with the FBI, CISA, and other organizations that follow national and global trends in security breaches and enforcement in more detail. Who in our company is keeping track of evolving threats? Is there an awareness that current geopolitical tensions or natural disasters can exacerbate the impact of our vulnerabilities and alter the nature of our protections? And are these incorporated into reports to the Board and corporate officers?

Leaders should be aware of what the cyber-liability insurance covers, as well as the information the provider requires and how the company’s approach to managing risk might raise or lower premiums. The underwriting process requires extensive reviews. Is there a report that shows the company’s strengths and weaknesses that can be used as a path to improvement?

We must approach traditional cybersecurity activities of protection, inspection, and reaction with participation across the enterprise. Incident and crisis response plans should include plans to communicate with stakeholders and potentially shareholders quickly and effectively and be formed with a thorough understanding of the legal and financial risk that may accompany an incident. The response plan should include the methods by which root causes should be determined and documented in an after-action report and monitored throughout resolution.

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Cyber risk: For Board Directors & C-suite executives, governance cannot be an “IT thing”

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Innovation and digital transformation are the future of our technology-driven industry. Such capabilities are rightly viewed as future drivers of efficiency for our customers and revenue for our businesses. But Boards and C-suite executives must be aware of the potential increase to cyber-risk that could follow.

In fact, we need to see everything we do through the lens of cyber-risk governance and make every business decision while understanding the impact that the decision might bring. It should be second nature to ask in strategic Board-level discussions what the accompanying risk might be and how the impact or likelihood of an event fits within our ability to absorb the downside.

Our duty is to find the right balance between growth and prosperity and cyber protection and response. Any Board of Directors or Executive Leadership Team should understand their own role within a cyber incident. The procedures should be documented in the incident response plan, and they should participate in annual tabletop exercises or simulations. Leaders have a duty to ensure that an organization-wide cyber risk management plan has adequate funding and staffing to develop and execute. The budget should not be tied to only the CISO or one department, as the roles of multiple departments are called for, e.g., employee recruitment and training, legal relations, public, investor, and government relations, product development, and vendor management.

Cyber security measurement and reporting is not an optional task; the goal is to prompt discussion and dialogue around relevant, understandable insights, with trending information that can be used to see relative performance against peers and industry averages. The report should be a concise description of the impacts on business operations, with drill downs on likelihood, impact, velocity of the trending, duration, and interdependency. Board review of enterprise Key Performance Indicators (KPIs) demonstrates to investors and all stakeholders their involvement in the governance and oversight of cyber-risk. Executives should review performance on a routine basis – the situation is dynamic. The cost to protect company assets changes continuously and as the magnitude of the threats evolve.

Executive and Board education is an obligatory part of our fiduciary duties of care and loyalty.

We should go beyond just the annual mandatory security awareness provided by the company and take advantage of the many learning opportunities that exist and consider having deeper cyber expertise available to the Board.

Every principle described in the “NACD Director’s Handbook on Cyber-Risk Oversight” is augmented by tools provided in the document. These tools are a great resource for Boards to get up to speed. As a starting point, there is a cross matrix between the principles and the tools provided which should help Boards and C-suites prioritize.

I hope you will check it out. Given the world we live in, how can you not?

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REIMAGINED PERSPECTIVES Redefining What’s Possible

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Sustainable practices for food security.

Precision Agriculture In 2020, the United Nations estimated that more than 2.3 billion people (or 30% of the global population) lacked year-round access to adequate food.

While this worsening of world hunger was exacerbated by the COVID-19 pandemic, the outlook for the future is more dire with the impact of climate change on agriculture and food security.

Climate change can increasingly put pressure on food production and access in vulnerable regions, but developed countries are not exempt. And if humanity exceeds the 1.5-degree Celsius milepost, about 8% of the world’s farmland would become unsuitable for agriculture.

Delivering a complete view of every acre and field – from planting to harvest – provides timely insights to yield a sustainable crop supply.

Saving resources, improving farming efficiency Transforming agriculture and crop yield is essential to achieving food security. To that end, Jacobs is developing some of the highest-grade multispectral imagery in the industry to support an increase in crop production and improve environmental stewardship

Our GeoPod system is being deployed in Indiana and Illinois to begin another season of digital aerial mapping in support of our precision agriculture partner, IntelinAir, Inc. By analyzing the 8.4 million acres of multispectral imagery we produce almost weekly, IntelinAir can determine various crop features during the growing cycle.

These analytical outputs are immediately used by farmers and their crop consultants and agricultural retailers to adjust their use of water, fertilizer and pesticides to optimize a healthy yield. This minimization of resource use is in stark contrast to past practices when the only prudent course of action for farmers was to use too much of these inputs. This led to fertilizer and pesticide run-off into watersheds, along with overuse of water. Now, with precision agriculture, farmers have the technology to enhance their environmental practices.

In addition to improving farming efficiency and reducing environmental impacts, IntelinAir has indicated that GeoPod imagery will soon be used to address the increasing demand for carbon sequestration measurement and verification. Jacobs will coordinate additional flights in the upcoming farming seasons to validate the farmers’ tilling and ground cover practices, which can then translate directly into carbon credits.

Reducing carbon wherever we can One of the acknowledged tradeoffs for this methodology is that using remote sensing aircraft does add carbon to the atmosphere, despite the fact that it's often less carbon-intensive than the ground-based techniques it replaces. Jacobs is actively pursuing ways to reduce its carbon and other emissions. Our GeoPod sensors allow the use of more efficient aircraft for large scale aerial surveying, which means that our aircraft use approximately 40% less fuel. We plan to migrate our operations to lead-free fuel beginning in 2023, becoming the first major aerial survey player to do so. And we have plans to modernize the fleet in the next several years, including aircraft that achieve another 60% improvement in fuel economy while achieving a 90% reduction in overall emissions.

Agriculture has a critical and vital role to play in climate change adaptation. But avoiding the worst-case scenarios requires harnessing innovation and limiting global warming to the 1.5°C goal.

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Closing the circle: challenging how we think about our consumer economy.

Circular Economy

Taking action to reach net zero is critical, and transforming our thinking to create a circular economy is a powerful step in the right direction.

Unsustainable consumption of our natural resources is negatively impacting the health of our planet, and we are rapidly approaching a tipping point across our fragile ecosystems. Shifting our thinking from a linear economy mindset, which uses a “take, make and dispose” approach, to a circular economy mindset, keeps resources and products at their highest value and seeks to regenerate our natural capital.

The Ellen MacArthur Foundation, which works to accelerate the transition to a circular economy, estimates that 9% of our economy is circular, and only 5% of material value is recovered. This means that 95% of the material value our global economy creates is thrown away. Year after year, water demands increase because of population growth and economic development. Recently, we’ve seen additional stresses on the global water supply from climate-related severe weather events, such as hurricanes, superstorms, tornadoes, wildfires, floods and drought. Water availability is intensely connected to weather and climate patterns, and water scarcity and extreme weather events are becoming increasingly common, with major impacts to public health, the environment and local economies.

Improving productivity, reducing impacts The circular economy offers a path that will improve economic productivity as well as reduce impacts on the environment and climate. In practice, this involves extending the useful life of products through better design and maintenance; finding second and third (and more) lives; repair, refurbishment and remanufacturing; and lastly, recycling.

Circular economy in practice At PA Consulting, we’ve worked with innovators, such as Enso Ltd., reimagining the future of tires for electric vehicles; finding new uses for old plastic and creating a sustainable business for Ecobooth; and helping develop a platform to enable a re-commerce business model in retail for Stuffstr.

In the public sector, Jacobs is working with Scottish Water and Zero Waste Scotland to implement a full-scale trial to reuse recovered grit as recycled aggregate, with the potential for significant cost and carbon savings.

And in a partnership with the Western Placer Waste Management Authority, our team has created a roadmap and permit framework to take a full-service, publicly owned regional waste management campus to the next level, laying the groundwork for a sustainable, regional circular economy economic engine.

Designing for circularity Success, regardless of the sector, is predicated on designing products for circularity and introducing new business models that incentivize circularity instead of product obsolescence. The product and business model must work hand-in-hand. Finding and defining the right opportunities for business is not straightforward, but there is help. We’ve worked with the Ellen MacArthur Foundation and Exeter Business School to launch an open-source, how-to guide to help businesses do this

Tips of the trade

▪ The transition to circularity requires innovation. Businesses need to experiment and

learn before they can realize economies of scale.

▪ Circularity is a property of an economy, or a value chain. Businesses need to work with others across the value chain in new ways, for example, manufacturers working with waste disposal and recycling companies.

▪ Investable and scalable circular businesses must focus on monetizing the value they create for customers. We don’t yet have the mechanisms in place to reward contribution to the greater good.

Get this right, and there are real business opportunities to be made, in ways that also benefit society and the environment

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Unlocking the potential of 5G

Telecom Resilience Redefining Connectivity: Navigating the Complexities of 5G Transformation In digital connectivity, fifth-generation (5G) wireless technology offers compelling opportunities for innovation, promising unparalleled speed, reduced latency, and transformative potential. However, beneath the surface of this technological marvel lie intricate challenges and multifaceted requirements that demand careful navigation. This article addresses the complexities of 5G adoption, including critical considerations such as cost, infrastructure, security, and strategic imperatives. It aims to inform enterprises with knowledge and about tools necessary to embark on a successful journey towards embracing the transformative power of 5G.

Embracing the Evolution of Network Architecture As organizations contemplate the transition to 5G, it will become "Before anything else, evident that the required shift extends beyond mere technological preparation is the key to upgrades—it represents a fundamental transformation in network success." architecture. The emergence of the 5G core (5GC) heralds a paradigm shift towards a software-defined, service-based architecture, enabling – Alexander Graham Bell unprecedented flexibility, scalability, and customization. The implications of this architectural evolution, emphasizing the importance of decentralization, cloud-native infrastructure, and enterprise empowerment in driving 5G adoption is addressed below.

The 5G Difference: A Paradigm Shift in Telecommunications Beyond its technical specifications, 5G signifies a seismic shift in the telecommunications landscape, redefining mobile networks as robust service platforms rather than mere conduits for connectivity. By offering theoretical download speeds exceeding 10 gigabits per second (Gbps) and ultra-low latency, 5G unlocks myriad possibilities—from immersive experiences to real-time analytics and IoT innovations.

However, realizing the full potential of 5G requires organizations to grapple with various challenges, ranging from spectrum availability and propagation characteristics to infrastructure investment and security vulnerabilities.

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Unlocking the potential of 5G Speed, Latency & Efficiency: Balancing Promise and Practicality While the theoretical advancements of 5G are undeniably compelling, the practical implementation presents numerous nuanced challenges. Spectrum availability, particularly in the mmWave frequency bands, poses a significant hurdle, necessitating substantial capital investment and meticulous infrastructure planning. Moreover, the propagation characteristics of mmWave frequencies demand a denser network infrastructure, further complicating deployment efforts. Despite these challenges, organizations can leverage innovative technologies such as beamforming, massive MIMO, and network slicing to optimize spectral efficiency, enhance network coverage, and deliver unparalleled user experiences.

Security: Safeguarding the Nexus of Connectivity As the proliferation of connected devices accelerates with the advent of 5G, robust security measures become essential to safeguarding sensitive data and ensuring the integrity of network infrastructure. The adoption of enhanced encryption standards, such as the 256-bit Advanced Encryption Standard (AES), and the implementation of sophisticated security protocols, such as Extensible Authentication (EAP) and Message Authentication Code (MAC), are crucial steps in mitigating security risks.

Additionally, network slicing offers a tailored approach to security, enabling organizations to create virtual private networks with customized security parameters and access controls. However, the sheer volume of connected devices and the complexity of network architectures amplify the risk landscape, necessitating a proactive and multi-layered approach to cybersecurity.

"In the movie Jaws, Chief Brody tells Quint, “You’re gonna need a bigger boat.”

The 5G standard is telling network operators, “You’re gonna need more spectrum."

– John Parham VP and General Manager Jacobs Telecom Group

Strategic Imperative: Paving the Path to 5G Excellence As organizations embark on their 5G journey, strategic planning and meticulous execution emerge as critical success factors. Developing a comprehensive 5G roadmap entails aligning technological investments with business objectives, identifying opportunities for innovation and differentiation, and prioritizing initiatives based on strategic imperatives. Moreover, organizations must foster a culture of agility and continuous adaptation, recognizing that the journey towards 5G excellence is an ongoing evolution rather than a one-time implementation. By embracing the convergence of 5G with emerging technologies such as artificial intelligence (AI), machine learning (ML), and IoT, enterprises can unlock new frontiers of innovation, agility, and competitiveness.

Navigating the Nexus of Innovation and Challenge The path to 5G excellence is paved with opportunities and challenges, requiring organizations to navigate a complex landscape with strategic foresight and agility. By embracing a proactive mindset, leveraging innovative technologies, and prioritizing cybersecurity, enterprises can harness the transformative power of 5G to drive innovation, enhance operational efficiency, and secure a competitive advantage in the digital age. As the journey towards 5G unfolds, those adept at navigating the complexities of adoption will emerge as trailblazers in the next era of connectivity and innovation.

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1

Successfully Navigating the Pitfalls of Artificial Intelligence Jack Burbank Executive Director, Advanced Communications Technology Sabre Systems, Inc. Artificial Intelligence and Machine Learning (AI/ML) have proven to be powerful tools across a wide range of applications. They are now commonly used in a wide variety of forecasting and analytical applications across virtually all sectors of modern society, including financial, medical, academic, government, and law-enforcement communities.

Engineers and scientists have increasingly used AI/ML over the past decade to solve a multitude of problems, often with astonishing success. However, AI/ML has only come into the public consciousness in the past few years with the rise of Generative AI/ML (GAI) and Large Language Models (LLM) (a subset of GAI) such as ChatGPT. Today there are hundreds of AI/ML tools available, many of which would have been unheard of even 5 years ago. These tools can perform a multitude of tasks, often with outcomes so good they seem almost magical. The result is excitement and interest rarely paralleled by previous technologies. Not only has AI/ML proven useful to engineers and scientists to solve technical problems but is now increasingly being used to conduct market research, generate marketing materials, perform business development functions, and make key business decisions. This trend is expected to increase in the coming years with AI/ML permeating most aspects of our personal and professional lives. AI/ML has already been labeled as transformative and for good reason. Naturally, many of us will feel compelled to incorporate AI/ML in our solutions and products to remain or be seen as competitive. Those pressures may even tempt some of us to trust AI/ML to perform increasingly sensitive and mission-critical tasks sooner than may be prudent.

A strong argument can be made that organizations that develop effective AI/ML adoption strategies will have a competitive advantage over those that do not. Recognizing this, some organizations will feel a need to rush towards AI/ML adoption in many aspects of their business. Enthusiastic early adopters may view AI/ML as so transformative and capable of performing virtually any task that they make it a priority to fully integrate it in all aspects of their business as quickly as

possible. While it has been demonstrated that AI/ML can perform some tasks better than humans, some people will be more hesitant and cautious in adopting it. That reticence may come from fear of the societal ramifications of replacing humans with machines or a belief that machines could never do as good a job as a human being. Some may not understand AI/ML or believe it is as good as the media coverage portrays.

Others may think AI/ML is too new of a technology to be trusted with critical tasks and want to take a slower, more carefully reasoned approach to AI/ML adoption.

As is usually the case in most matters, the truth lies in the middle. Organizations that effectively adopt AI/ML in the right areas will have a competitive advantage over those that do not. However, AI/ML adoption can come with pitfalls with potentially serious consequences for organizations that unwisely embrace AI/ML. If not done thoughtfully, risks associated with AI/ML implementation can become a competitive disadvantage. Some organizations will reactively rush to AI/ML adoption in response to public and media fervor over AI/ML simply because they think they must remain competitive. While a smart AI/ML adoption strategy has tremendous upside, a poorly planned, rushed AI/ML adoption strategy has tremendous downside.

And, while it is true that AI/ML can replace many tasks currently conducted by humans, AI/ML cannot totally replace humans at this point in its evolution. AI/ML will shape the role that humans play, but not eliminate it. In fact, optimal AI/ML incorporation places a premium on human activity. AI/ML adoption without a strong human-in-the-loop factor is often destined for failure. And, this will remain true for the foreseeable future.

It behooves organizations to plan their AI/ML adoption strategy carefully and deliberately. A key element of this strategy should include a clear understanding of the challenges and common pitfalls of AI/ML adoption and a proactive plan to mitigate those challenges and avoid those pitfalls. This is true whether planning on developing your own AI/ML tools and models, or whether you plan to use other people’s AI/ML tools (e.g., ChatGPT).

It's all About the Data As we increasingly rely on AI/ML algorithms to assist in key decision-making processes, it is important to ensure they are sufficiently consistent and accurate. The performance of an AI/ML model is highly dependent on the quality of the data that is used to train it and the live data that it operates on. The well-known adage “garbage in, garbage out” holds especially true for supervised and semi-supervised ML models. To illustrate this, consider the below figure.

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2

Figure 1. Traditional Computer Programming versus Machine Learning In its simplest form, traditional computer programming involves providing input data and program rules to a computer, which then produces an output based on that input data and rule set. In supervised AI/ML approaches, that paradigm is dramatically shifted. In this case, the computer is provided input data and output data and then it generates program rules that adhere to that input-output relationship with the goal of predicting outputs for new input data. So, how do these paradigms react to problematic data? In the traditional programming paradigm, bad input data will yield bad outputs.

In the ML paradigm, bad input data or bad output data can yield bad program rules that will persistently affect future output in a negative way. This places a premium on the data that is used to train the AI/ML model. Problematic data can lead to overly optimistic model performance estimates, unintentional bias in prediction results, degraded model accuracy, and/or poorly understood model behavior.

Historically, most negative outcomes associated with AI/ML models can be directly traced back to problematic data.

Indeed, AI/ML models often produce incorrect or nonsensical outputs. It is so common that there is a specific term associated with this phenomenon, AI/ML hallucination. While there is no agreement within the community how often this happens, common estimates are that the best AI/ML models produce hallucination rates of 3% or greater. However, AI/ML model developers often admit their models produce hallucinations at a much higher rate.

Whether using your own private dataset or publicly available datasets, most real-world datasets will have issues that need to be addressed to avoid poor model performance. These issues and related considerations include: Data provenance – When using publicly available datasets, you need to know where they come from. Specifically, you must establish the provenance and trust level of this data. You also must be vigilant for things like data poisoning, which is the intentional corruption of training data with the intent of manipulating model outputs. This threat is real and must be guarded against. Only rely on data that has an established provenance and that you can trust.

Missing, duplicate, and corrupt data – Missing and duplicate data is a common occurrence caused by a multitude of reasons, including equipment malfunction, data curation errors, and human errors. Any of these can lead to poor model performance such as inaccurate predictions or unintended

bias and must be dealt with before being introduced to the AI/ML model. Great care must be taken in the strategies employed because thoughtlessly ignoring missing data can lead to survivorship bias. Duplicate data can be equally problematic. Failure to properly address data quality can lead to data leakage and overly optimistic model performance estimates.

Outliers and anomalies – Another common occurrence in realworld datasets are outliers and anomalies in data that are often the result of data entry error or malfunctioning equipment. Typical approaches sometimes simply focus on the identification and removal of anomalies. However, sometimes anomalies have important meaning, and their removal can result in sampling bias. Investigation and analysis are essential before acting on a data anomaly.

Incorrect or missing data labels – This is a common problem in real-world datasets caused by equipment error, programming error, human error, or incorrect or missing data labels, which can all significantly impact model accuracy.

Data imbalance – Training data must be representative of the data the AI/ML model will encounter. If certain classes of data are over-represented while others are under-represented, the dataset is said to be imbalanced. Imbalanced datasets must be addressed, or the resulting AI/ML model will be biased towards the over-represented class and provide poor performance for minority classes.

Effective approaches to solve these data issues are important to ensure datasets are of high quality to optimize model performance.

Using Publicly Available AI/ML Tools Many will not develop their own AI/ML tools but, rather, will leverage existing GAI tools such as ChatGPT in their business processes. When using publicly available tools, there are three key pitfalls to be aware of: AI/ML Hallucinations – GAI tools will often generate highquality products, but other times they will not. Sometimes they will give you misleading answers and other times completely incorrect ones. In some cases, they will give you answers so outlandish it leaves you scratching your head. GAI hallucination rates are typically worse when recent information

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3 is required to accurately answer the question or complete the request. This is because of the knowledge cutoff of GAI tools, which corresponds to the latest information present in the training data used to teach the AI/ML model. For example, as of November 2023, ChatGPT-3 had a knowledge cutoff date of January 2022 and ChatGPT-4 had a knowledge cutoff date of April 2023. Think of the world events between January 2022 and November 2023, and now imagine a GAI tool attempting to generate content that required knowledge of recent events.

In some of these cases, these GAI tools will still give you an answer, but it may be non-sensical or at best inaccurate. That is why hallucination rates are often higher when recent information is required to formulate a response.

Plagiarism and Copyright Infringement – GAI tools can generate high-quality products. However, these products may include material that is protected by Copyright or Trademark law. GAI tools may also plagiarize sources when generating your requested content. This is a high-risk area and the human in the process needs to be especially vigilant.

Quality of Data Sources – GAI tools are trained on enormous amounts of information, not all of which are created equal. The internet has many remarkably high-quality, peer adjudicated information sources. The internet also has a significant number of low-quality sources that contain inaccuracies and misinformation. GAI tools generally cannot discern between the two and will place equal weight on the sources. This contributes to hallucinations and biases.

Ways to Avoid the Pitfalls of AI/ML When developing your own models, there are two keys to success: 1) data science, and 2) domain expertise. Exploratory Data Analysis (EDA) is critical in understanding your dataset.

EDA involves the visualization and statistical analysis of the data to find interesting characteristics. Data scientists use EDA to identify trends and issues in the data to appropriately clean the data. Data scientists address issues such as missing data, duplicate data, and the presence of outliers and anomalies. Domain expertise is critical in the analysis of the data and to properly address problematic issues. In the case of missing data, domain knowledge is especially important in understanding whether missing data has meaning and determining the best strategies for inputting missing values. In the case of outliers and anomalies, domain expertise is a key in understanding not only how to identify anomalies but how to address them. Duplicate data often has meaning, and domain knowledge is vital to understanding the significance of duplicate data entries. Proper staffing of any AI/ML-related team is critical. Obviously, you will need AI/ML model developers, but even more important are data scientists and domain experts (in whatever related field you are attempting to develop a model for). If you don’t have domain expertise on your team, you must bring that expertise in through hiring or collaboration. You should never try to solve any problem for which you don’t have access to domain experts.

When using existing publicly available models, domain expertise is equally essential. You should NEVER rely on something a GAI tool has created without reviewing it. If you’re not qualified to write it yourself, don’t rely on a GAI tool. They make mistakes! It is up to you to review what the GAI tool has created to ensure it is accurate. Review, review, review. Review for accuracy. Review for plagiarism. Review for Copyright or Trademark infringement. Use caution in using GAI tools for business-critical products. Even at a low hallucination rate of 3%, are you prepared to accept those odds when a hallucination could result in litigation, loss of revenue, and/or loss of customer credibility?

Overall, AI/ML is a powerful tool that can serve organizations very well. But it does not negate the importance of humans in the process. When creating your own models, there is a premium on data science and the proper preprocessing and cleaning of training data. Whether you are creating your own model or using publicly available models, domain expertise is a “must have” key to success. Domain expertise will be required to develop effective strategies in cleaning and preparing data for your own models. When using publicly available models, domain expert review is essential. AI/ML tools are not perfect and will make mistakes. By keeping the human-in-the-loop you can leverage the power of AI/ML while preventing an AI/ML hallucination from becoming a publicly embarrassing and damaging moment for your organization.

For More Information

https://www.sabresystems.com

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UNANET WHITE PAPER

Three Benefits from Streamlining Budgeting, Forecasting and Reporting

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Streamliing, Budgeting, Forecasting, and Reporitng

OVERVIEW Superior business performance demands superior budgeting, forecasting and reporting. More than ever before, government contractors need to step up the efficiency and effectiveness of budgeting, forecasting and reporting processes. Three benefits arise from automating budgeting, forecasting and reporting.

1. Reduction of Indirect Rates

2. Implementation of Strategic Goals

3. Accountability at All Levels

Decreasing rates to win contracts is a primary

Participation and accountability by every employee

focus as LPTA (Lowest Price Technically Acceptable)

is essential in today’s businesses. Access to budget

contracts are being awarded in increasing numbers.

and actual data by role and organization is

Reducing the number of indirect employees helps

essential to allowing employees to be accountable.

to decrease the indirect rates. Enabling Project

Entering labor hours and direct costs requires

Managers to plan and monitor their own projects as

that all employees follow DCAA guidelines. It is

part of direct project work, without having to depend

important to have accurate data to avoid an army

on Finance & Accounting to produce reports, moves

of administrators (indirect labor) to correct data.

indirect labor hours to direct labor.

Project managers need to have real-time access for project monitoring to ensure projects are completed

Instead of building indirect rates, it is good to have

on time and on budget. It is essential for Project

target rates in mind. In that way, everything is

Managers to see labor and other costs against their

validated in relation to strategic goals. Instead of

project in real-time, rather than waiting two weeks or

only developing the rates bottom-up from the

twice a month to receive a notification from Finance

indirect and direct projects, a best practice is to

that the budget has been exceeded. Past contract

start by identifying what indirect rates would be

performance drives Federal Agencies to select the

best, and then working downward to the indirect

most efficient and effective government contractors.

and direct costs while adjusting accordingly. DCMA will audit indirect rate pools and rates during

Today’s software enables reduction of indirect

incurred cost submissions, so it is critical these

rates, implementation of strategic goals, and

rates have a solid foundation.

accountability at all levels. Here is a simplified view

unanet.com

02

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Streamliing, Budgeting, Forecasting, and Reporitng

of professional services automation to achieve

Software then calculates the indirect rates (fringe,

streamlined budgeting, forecasting, and reporting

overhead and G&A) and fees using the pools of

processes. The budgeting process starts by

collected cost data. The indirect rates are applied to

identifying current projects extending into the next

the direct projects. Iterative scenario planning helps

year and selected new opportunities with some

develop optimal indirect rates and staffing levels,

probability of winning. Typically, project managers

both direct and indirect.

and/or financial analysts plan direct and indirect labor in a grid or spreadsheet with cost data. They

After developing plans and rates, the optimal

also plan expenses in a similar grid.

scenario is set into project/task budgets for the coming year. The detail labor plans at the person

Balancing of projects with the people will determine

level and expense plans are also set as budgets by

whether more people are needed or the staff needs

person.

to be trimmed. A headcount capacity analysis can be done to analyze existing capacity, budgeted amounts and plans.

unanet.com

03

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Streamliing, Budgeting, Forecasting, and Reporitng

Once a budget is developed, the important thing is

comparing actual, planned and budgeted hours

to monitor performance of actuals to the budget.

(or costs) will deliver insightful information to

Real time project alerts, project reports, and push

the project manager and the senior operations

reports deliver an early warning system when

management staff.

approaching budget limits. Integrated Earned Value Management reporting will go a long way to better manage projects. Simple graphical reports

Organizations that put effort into streamlining their budgeting, forecasting and reporting processes will be the winners.

Where Information Means Insight

Unanet is a leading provider of ERP solutions purpose-built for Government Contractors, A/E, and Professional Services. More than 2,000 project-driven organizations depend on Unanet to turn their information into actionable insights, drive better decision-making, and nurture business growth.

ADDRESS

PHONE

ONLINE

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Email: info@unanet.com

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Web: unanet.com ©2020 Unanet. All rights reserved.

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US Federal Contractor Registration

Small Business Plan Good Faith Standards

Navigating Federal Subcontracting Requirements 48

Small Business Subcontracting In recent years, the landscape of federal contracting has seen significant changes to expand opportunities for small businesses. On January 25, 2024, new actions were announced to expand small business access to federal contracts further. These changes include increased contracting goals for small businesses across all federal agencies and higher expectations for prime contractors to meet small business subcontracting goals. While agencies and the Small Business Administration can measure the use of small businesses as prime awardees, measuring the use of small businesses across subcontracts becomes more burdensome.

Federal contracts awarded to “other than small” businesses over the simplified acquisitions threshold must contain a small business subcontracting plan. In this plan, which follows the requirements of FAR 52.219-9, the prime contractor sets goals for what it plans to subcontract to small businesses. (“Prime and subcontracting | U.S”)1 To assess the success of these subcontracting efforts, government contracting officers utilize the Electronic Subcontracting Reporting System (eSRS). However, tracking subcontracting goals can pose challenges for prime contractors, particularly in demonstrating a good faith effort to adhere to their subcontracting Plans.

Prime contractors must be prepared to show evidence of good faith efforts to follow their subcontracting plan outline, mitigating risks and enhancing accountability. Critical factors in

assessing compliance with the good faith standard include proper and active System for Award Management (SAM) registration, verification of certified small disadvantaged set-aside groups, and efforts to provide subcontracting opportunities for small businesses.

FAR 52.219-9 d(8) states, “A description of the efforts the Offeror will make to assure that small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns have an equitable opportunity to compete for subcontracts.” (“52.219-9 d(8) Small Business Subcontracting Plan.”) Part of the good faith effort that needs to be met by prime contractors is to identify their efforts to locate small businesses through marketing, attending events and other hiring platforms (“52.219-9 d(11) Small Business Subcontracting Plan.”).

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Subcontract Reporting Challenges The U.S. Government Accountability Office (GAO) was asked to review federal agencies’ assessment of contractors’ compliance with this good faith standard.

“In eight of our 11 group interviews, contracting officers told us that the flexibility of the good faith standard can also be a challenge and lead to different interpretations of the standard.” (“Small Business Subcontracting: Some Contracting Officers Face Challenges Assessing Compliance with the Good Faith Standard”).2

The GAO found that most federal agencies do not report or review data on contractors’ achievement of their subcontracting goals. In an effort to standardize interpretation, FAR 19.705-7 contains examples of a goodfaith effort and examples of a failure.

There is no standard way to measure the level of effort a company puts into meeting this requirement.

This requires manual checks and balances on the prime contractors’ part to ensure accurate reporting on small business subcontracting totals throughout the year.

Because regulations require that subcontracting plans become a part of the contract upon award, with corrective actions when a contractor fails to make a good-faith effort to comply, there needs to be a standard process to evaluate with clear expectations on the assessment of plan performance and more training at the agency level to limit the flexibility of interpretation.

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Moving Forward for Better Opportunity with Better Clarity While enhanced oversight can be met with unintended consequences, there Is an opportunity for standardization in assessing compliance with small business subcontracting goals. With standardization, agencies can share resources, training, technology, and best practices. Standardization can come in many forms and can include prioritizing the streamlined collection of data across subcontracting plans, empowering the primes with technology to help lift the burden of data-intensive compliance reviews, and providing guidance to contracting officers to ensure consistent and accurate evaluation of prime contractors’ efforts to meet small business subcontracting requirements. Once an efficient model is developed, adoption across all agencies will be what makes the program more impactful long term.

“Once an efficient model is developed, adoption across all agencies will be what makes the program more impactful long-term.”

Furthermore, collaboration between federal agencies and the Small Business Administration (SBA) is crucial in analyzing small business goals accurately and implementing measures to promote greater transparency and accountability in federal contracting practices. By addressing these challenges and strengthening oversight mechanisms, the federal government can effectively support the growth and sustainability of small businesses in the federal contracting marketplace.

Sources 1. Acquisition.gov: FAR 52.219-9: Requirements for prime contractors’ small business subcontracting plans.

FAR 19.705-7: Examples of good-faith efforts and failures in subcontracting plans.

2. U.S. Government Accountability Office (GAO) Report: Discusses challenges in assessing compliance with subcontracting good faith standards, highlighting the need for clearer guidelines.

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ERIC KNELLINGER President/CEO Eric Knellinger is the President of US Federal Contractor Registration, the world’s largest and most respected Federal Government registration firm. Eric has over 30 years of experience in government acquisition, advertising, marketing, sales, and business development.

JESSICA SUMMERS Chief Operating Officer Jessica Summers is a seasoned professional in government contracting with 12 years of experience. She is a trusted advisor for navigating federal procurement and specializes in registration, certification, bid proposal development, contract negotiation, and compliance management. She works with businesses of all sizes across industries to provide tailored guidance throughout the contracting process.

jsummers@usfcr.com | (877) 252-2700 x730

CHRISTIE JACKSON VP of Regulation and Compliance Christie Jackson is a highly experienced and successful professional with over 12 years of experience in the Federal Government Contracting & Procurement field. She is a highly skilled and experienced professional in managing complex projects and initiatives across all phases of the contracting process.

cjackson@usfcr.com | (877) 252-2700 x1758

US Federal Contractor Registration (USFCR) is the largest and most trusted full-service Federal consulting organization. USFCR also provides set-aside qualifications, including women-owned, veteran-owned, disadvantaged (8a), HUBZone, and other federal contracting services, technology, and training.

15950 Bay Vista Dr, Suite 250 Clearwater, FL 33760 (877) 252-2700 52

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