At the same time, a push for advanced defense systems, infrastructure and green products and services offers opportunities for continued growth that can set them up for long-term success.

Here are four strategies government contractors should consider to win business opportunities today.

Update cybersecurity compliance

As cyberattacks become more sophisticated, businesses must continue to build their defenses against them. Highly sensitive government data can be an appealing target for bad actors, so defense contractors must carefully safeguard information by adhering to the DoD’s Cybersecurity Maturity Model Certification, or CMMC, program.

In November 2021, the DoD announced CMMC 2.0, which introduced consolidated levels meant to simplify compliance. Although rulemaking isn’t finalized (and timelines for finalization could range from early 2024 through 2025), contractors should familiarize themselves with CMMC 2.0 requirements. For instance, once rules go into effect, level one defense contractors must comply with 17 best practices, such as requiring multifactor authentication for system users.

Companies that want to mitigate risk might consider partnering with a cybersecurity expert that can help them navigate the CMMC compliance process.

Address ongoing supply chain hurdles

Though inflation rates are down from their 2021 and 2022 highs, the financial impacts of the past few years are still echoing across supply chains. Inflated costs associated with shipping, energy, labor and materials significantly impacted government contractors, many of whom were stuck in firm-fixed-price contracts that no longer mirrored the economic reality. As a result, some had to choose between continuing to lose money or withdrawing from the contract.

In early 2022, the General Services Administration, which provides purchasing options for federal agencies, temporarily removed restrictions on economic price adjustments in contracts, and earlier this year, they extended that policy through the end of September 2023.

There’s no guarantee that this moratorium will be extended again, so contractors must work with agency partners to fortify their supply chains and ensure they can continue delivering goods and services.

Carefully weigh M&A

For government contractors, mergers and acquisitions have long been a critical growth strategy, and the increased appetite for technology and defense-related products has created an atmosphere ripe for deals. In 2022 alone, 140 M&As occurred in the government market, and while that number was down from the 190 deals that went through in 2021, it was still higher than the annual average of around 100.

Buyers interested in acquisitions should consider that a higher volume of deals can drive up prices. When considering a deal, buyers need to look at targets’ past performance to assess whether their capabilities are well-aligned and what expansion opportunities exist.

Seize new opportunities

Over the past three years, three pieces of legislation were signed into law to help catalyze the U.S. industrial sector. The Bipartisan Infrastructure Law, the CHIPS & Science Act and the Inflation Reduction Act will collectively inject approximately $2 trillion in federal spending over the next decade—some of which will be used to upgrade or replace aging infrastructure throughout the country.

The scale of this spending may encourage companies that haven’t previously worked as government contractors to throw their hats in the ring. Companies that are a good fit for the job should submit bids, but they need to understand key differences between the public and private sectors.

Some private sector practices—such as passing along increased costs—may be prohibited when dealing with government agencies. Additionally, government work comes with crucial compliance requirements, special rules for communicating and negotiating and other standards.

For some government contractors, an evolving landscape may sound like an exciting challenge worth meeting. By employing these strategies, businesses can realize new ways to build for the future and support government agencies’ important missions.

Edward Spenceley is Senior Vice President and National Government Contracting Specialist at Bank of America Global Banking and Markets

The so-called CBC2 effort is closely tied to the service’s Advanced Battle Management System, or ABMS, itself a portion of the Pentagon’s larger connect-everything-everywhere campaign now known as Combined Joint All-Domain Command and Control.

U.S. Northern Command, North American Aerospace Defense Command and Pacific Air Forces, the air component of Indo-Pacific Command, were slated to be the first organizations to receive the program, which melds information from hundreds of radar feeds and lets users tap into machine-fueled analysis.

“The CBC2 plan that we have right now is one we intend to preserve, despite a slowdown with regards to getting budget when and where we need it,” Brig. Gen. Luke Cropsey, the integrating program executive officer for command, control, communications and battle management, told reporters Sept. 11 on the sidelines of the Air, Space and Cyber Conference at National Harbor in Maryland.

“It’s really about prioritization, right?” he said. “How far can you get with the dollar you have available?”

The Air Force in January tapped Science Applications International Corporation to orchestrate CBC2 software. The deal was worth up to $112 million.

Talk of a short-term spending bill — or even a partial government shutdown — is heating up as the last weeks of fiscal 2023 tick away. While a continuing resolution maintains the funding rates of the previous year’s appropriations and ducks a full-blown stoppage, it also jeopardizes the start of new projects.

Members of the House are expected in the coming days to vote on an $826 billion Defense Department budget for fiscal 2024. The White House has threatened to veto the measure, should it get that far, Defense News reported.

Air Force Secretary Frank Kendall on Monday said the service could endure a short-term continuing resolution, as it has in the past. But, he warned, a longer freeze could cause problems.

“Do not shut down the government in three weeks,” Kendall said. “Many of us have been through shutdowns. They are extremely damaging to our readiness, retention and morale.”

U.S. Central Command’s chief technology officer, Schuyler Moore, on Sept. 6 said there is a desire to tap “exquisite technologies, that exist both in the department and out in industry, inside a 12-month time frame” should the conditions be right.

But such capacity is a rarity.

“We would love to have access to capabilities in less than two years. That would be really great,” she said at the annual Defense News Conference, held blocks from the Pentagon. “The fact that we’re talking about fiscal year ’25, and given the speed at which we watch the problems evolve, based on what we put into theater … is faster than what our budget cycles move at.”

The DoD has long received criticism over its sluggish pivots and arcane acquisition processes. A commission with the Atlantic Council think tank suggested in an April report on innovation that the department update budget documentation and better align with its suppliers. Commission members included a former defense secretary and a former undersecretary of defense for acquisition and sustainment, among other high-profile individuals.

To fully exert the power of emerging tech, particularly tied to AI or autonomy, the department must understand that “capabilities require constant innovation and investment,” according to Joe Larson, an algorithmic warfare leader within the Chief Digital and AI Office.

The Pentagon rolled out its largest-ever innovation and modernization budget earlier this year, requesting $145 billion from Congress in fiscal 2024. The ask, about $15 billion more than the year prior, designates $687 million for the Rapid Defense Experimentation Reserve, an initiative spearheaded by Heidi Shyu, the undersecretary of defense for research and engineering, that aims to fill high-priority gaps with advanced tech.

“As the department wants to expand these capabilities,” Larson said at the conference, “we need to look at our underlying infrastructure.”

The bill is the first of three major defense bills Congress expects to move forward in less than three days. The Armed Services Committee voted in favor of the bill 58-1 after 14 hours of debate, setting the stage for the full House to vote in July before negotiating final legislation with the Senate. Rep. Ro Khanna, D-Calif., was the lone no vote.

“It is a good bill that will strengthen our national defense and provide for our warfighters,” House Armed Services Chairman Mike Rogers, R-Ala., said at the beginning of the mark up on Wednesday. “It will help build the ready, capable and lethal fighting force we need to deter China and our other adversaries.”

Still, Rogers and other Republican defense hawks previously have criticized the $886 billion defense top line as “inadequate” because it doesn’t keep pace with inflation. The top line is up 3.3% from last year, and is locked in place after Congress negotiated a deal to raise the debt ceiling while cutting non-defense spending to $704 billion.

Rogers has joined Senate Republicans in calling for Congress to circumvent the debt limit deal’s defense spending caps through supplemental spending packages for the Pentagon later this year, though House Speaker Kevin McCarthy, R-Calif., has resisted that idea.

Ukraine and Taiwan

The Armed Services Committee used electronic voting for the first time this year to mark up the defense authorization bill and more than 800 amendments, allowing lawmakers to move through the marathon session slightly faster than in prior years.

The amendments included a provision from Rep. Matt Gaetz, R-Fla., that would establish an independent inspector general to oversee Ukraine aid, similar to the Special Inspector General for Afghanistan. Republicans have called for this measure to provide an additional layer of Ukraine aid oversight beyond the Pentagon Inspector General. The committee approved the Ukraine inspector general as part of a package of nonpartisan amendments adopted by voice vote.

Democrats unsuccessfully sought to add $500 million to the Ukraine Security Assistance Initiative beyond the $300 million the Biden administration requested. Republicans argued the boost would harm readiness, with Rogers noting the offset “robs just about every operations and maintenance account in existence.” The proposed increase, introduced by Rep. Jared Golden, D-Maine, failed in a 28-31 party-line vote.

The bill stipulates that $80 billion of the Ukraine Security Assistance Initiative funds it provides should go toward giving Kyiv long-range Army Tactical Missile Systems, which the Biden administration has so far refused to send.

Additionally, the bill includes some bipartisan recommendations advanced by the House China Committee last month, including an amendment from China Committee Chairman Mike Gallagher, R-Wis., requiring the Defense Department to collaborate with Taiwan on cybersecurity.

Republicans passed 31-28 another China provision introduced by Rep. Ronny Jackson, R-Texas, over Democratic objections. That amendment requires the Pentagon to submit a report on plans to blockade fuel shipments to China in the event of a conflict. Rep. Adam Smith of Washington, the committee’s top Democrat, deemed the provision too aggressive and argued the Pentagon likely has classified plans for this scenario already.

Procurement

The bill authorizes procurement of nine battle force ships: two Virginia-class submarines, one Columbia-class ballistic missile submarine, two Arleigh Burke destroyers, two guided missile frigates, one T-AO fleet oiler and one amphibious transport dock ship.

The Navy did not request the amphibious ship, but the Marine Corps asked for $1.7 billion in its unfunded priority list to finish buying it.

The Armed Services Committee sided with the Marines, arguing the Pentagon’s plans to pause the line would allow the amphibious fleet to drop below the statutory 31-ship requirement. These ships are usually purchased every other year, but an amendment added by sea power subcommittee Chairman Trent Kelly, R-Miss., would authorize incremental funding through FY25 to allow the Defense Department to begin contracting and procuring the next amphibious transport dock in FY24.

Republicans also cited the Pentagon’s decision to pause buying amphibious ships as part of their justification for a provision in the bill that would abolish the Pentagon’s Cost Assessment and Program Evaluation Office and move its duties elsewhere, accusing the office of slowing down the acquisition process.

Lawmakers said the proposed pause could upend workforce and supply chains when Congress is focused on bolstering the shipbuilding industrial base. The bill also invests $251 million in the submarine industrial base in the hopes of getting it on track to build two Virginia-class and one Columbia-class submarines per year.

Republicans also passed an amendment from Strategic Forces subcommittee Chairman Doug Lamborn, R-Colo., that would institutionalize the sea-launched cruise missile nuclear program, while allocating nearly $196 million for its research and development in FY24. Democrats said instating the program would cost at least $31 billion and fundamentally change the mission of attack submarines.

But Lamborn failed to secure enough support to undo Rogers’ provision barring construction at the temporary Space Command headquarters in his Colorado district until Air Force Secretary Frank Kendall makes a long overdue final basing decision and justifies it to Congress. Lamborn withdrew the amendment in the face of opposition from Rogers and two other Alabama lawmakers on the committee, who want the Air Force to place the headquarters in Huntsville.

The bill would thwart Navy efforts to retire three amphibious ships and two cruisers, but it would allow the Air Force to retire 42 A-10 Warthog attack planes after long blocking efforts to do so. And the committee added by voice vote an amendment from Rep. Don Bacon, R-Neb., to prevent the retirement of Air National Guard squadrons until six months after Congress receives a report on how to fill the gap.

Members of the House strategic forces panel included in a draft of fiscal 2024 defense legislation a provision to establish a major force program for NC3, a highly guarded topic. The proposal was shared June 12, alongside additional National Defense Authorization Act input from other subcommittees.

Major force programs are featured in Pentagon budgets as collections of related programs and resources; they are one of several lenses that can be applied to analyze national security investments. Already existing filters include research and development, support of other nations, special operations forces and more.

A grouping specifically for NC3 would help “aggregate and better track sustainment and modernization efforts,” according to the draft language. The Congressional Budget Office previously estimated plans to replace aging NC3 systems would cost $77 billion between 2019 and 2028.

The Biden administration’s Nuclear Posture Review, published last year, pledged to strengthen nuclear command and control, including further insulation from cyber, space-based and electromagnetic attack. Different nuclear weapon types face different risks, as well, in part because of their age and lack of ingrained information technologies. Newer nuclear weaponry is expected to enter the stockpile after 2030 — and with it, the potential for more-modern systems.

“You have to assume adversaries are probing it all the time,” said Greg Mello with the Los Alamos Study Group, a watchdog that monitors nuclear programs, namely at Los Alamos National Laboratory in New Mexico. “There’s security in so-called peacetime, but there’s security when the system is stressed and communications are occurring under degraded conditions.”

“This system cannot fail,” he added, “and yet we know that everything made does fail at some point.”

The strategic forces panel is expected to discuss its piece of the annual defense bill Tuesday.

The MDA is tasked with developing and deploying layers of missile-killing systems to protect the U.S. as well as its deployed forces and interests abroad. Key to the assignment is detecting what’s actually incoming, calculating where it will land and quickly deciding the best means of interception, all of which is made more difficult by jamming and cyber harassment, according to Navy Vice Adm. Jon Hill.

“When I look at the future, and I think about the problems we face, beyond all of those different trajectory types and warhead types, for me it becomes the electronic attack and protection side of the house,” he said at a March 24 event hosted by the Center for Strategic and International Studies think tank. “We have to make sure we are as resilient as possible. We’ve been working on the cyber aspects.”

Electronic warfare is a fight for control of the electromagnetic spectrum, relied upon for communications, situational awareness, weapons guidance and more. The Defense Department is attempting to rebuild its related arsenal after decades of post-Cold War atrophy and years spent in the Middle East fighting less technologically-savvy forces.

Hill on Friday said the constellation of threats that exists and continues to evolve today is a far cry from previous years. Adversaries “have really upped their game in this area,” he said, “which means you have to up your game in defense, which also means it’s harder.”

Both China and Russia, the top national security hazards, according to U.S. officials, are developing advanced missiles that can be launched from the air, ground and sea as well as below the waves. And newer systems take advantage of decoys and other countermeasures to hide and misdirect, ultimately boosting survival rates.

“The future is how do you deal with these different kind of attacks we’ll have on the system, that are beyond just jamming,” Hill said. “It’s going to be hard.”

The MDA for fiscal 2024 requested nearly $11 billion, up from its ask of $9.6 billion in 2023 and $8.9 billion in 2022.

The budget blueprint has $346 million for what the MDA this month called “flight, ground and cybersecurity testing.” It also allocates $39 million to continue innovation, science and technology programs meant to “explore leap-ahead and disruptive technologies” that can be folded into missile defenses.

Iyer joins ServiceNow in the newly created position weeks after leaving the Army, where he sat atop the service’s IT sprawl and oversaw a $16 billion budget, which included hundreds of millions of dollars for cloud in fiscal 2023. The company announced the hire March 13.

“Raj is the best of the best,” ServiceNow CEO Bill McDermott said in a statement. “He’s the perfect leader to accelerate the mission critical nature of the work we do with governments around the world, to transform experiences for employees, service members, and citizens.”

Iyer in January said he would depart his military role after two and a half years, and return to industry. He previously worked at Deloitte, an international consulting firm.

In his new gig, Iyer will focus on digital transformation — a buzzy phrase often used to describe the embrace of new tech and the ditching of dated practices — across international markets, including in Australia, Canada, France, Germany, Japan, the U.K. and the U.S.

“We have a huge opportunity to truly transform the public sector through cloud-based digital technologies,” Iyer said in a statement. “ServiceNow has the biggest vision for digital transformation at the scale of government, and I’m thrilled to join a company that is equally as passionate and excited about the potential for change as ServiceNow.”

Iyer’s jump to industry precedes departures by two other Department of Defense IT czars.

The Navy’s Aaron Weis will leave his CIO post this month, and the Air Force’s Lauren Knausenberger will do the same in June. The timing of the respective exits, Knausenberger said at an event earlier this month, was not planned.

The two have not said where they are headed next.

Still, like the defense sector and the economy as a whole, challenges related to inflation, staffing needs and supply chain disruptions are impacting operations — with small companies and the supplier base affected more so than the large prime contractors.

It should come as no surprise the overall business of defense is booming around the globe, particularly in the United States and European NATO nations. Russia’s invasion of Ukraine in 2022 removed any doubts among politicians and military experts about the need for nations to maintain a strong defense. Worldwide spending topped $2.1 trillion for the first time in 2021, and it is forecast to surpass $2.4 trillion this year. (Concrete data is not yet available for 2022.)

Despite analysts having compared this conflict to trench warfare seen in both world wars — due to the reliance on tanks and missiles versus maintaining air superiority — space has played a vital role. As a warfighting domain, space has seen its importance steadily increase since Desert Storm in 1990.

Today, it is absolutely critical to military planning, tactical solutions and operations, including monitoring the battlefield; identifying targets and assessing damage; providing data and communications from the platoon level to individual soldiers; controlling drones; monitoring weather; and providing navigation and positioning information. All of these activities have proved valuable to Ukrainian forces.

U.S. President Joe Biden’s $773 billion fiscal 2023 budget request for the Defense Department included $28.5 billion in military space funding — up from $17.7 billion in FY21 and $21.8 billion in FY22. And for fiscal 2024, SPADE Indexes anticipates a rise by several billion dollars more.

Over the past few years, Congress has showed a strong commitment to boosting the budgets of the Space Force and the Space Development Agency by funding new efforts related to early warning satellites to detect and track ballistic and hypersonic missiles as well as expand global positioning, navigation and communications capabilities.

Despite this robust pipeline of activity, the military space-industrial base is facing a number of economic and industrial challenges. These include:

Inflation: In 2022, the United States and other nations saw a surge of inflation that impacted consumer and industrial pricing. When it comes to space infrastructure, there is a dichotomy between what the large prime contractors are saying and what small firms and suppliers are reporting. At a recent Cowen investor conference, large primes like Lockheed Martin and Raytheon Technologies called labor and supply chain inflation manageable. And they said cost-plus contracts allow them to pass increases to their customer and that fixed-price contracts can be offset by productivity gains, cost-cutting efforts and negotiations with suppliers.

Smaller firms and subcontractors, however, report they are negatively impacted by rising costs that are sometimes double or triple their originally forecasts due to the increasing rate of inflation, leaving them little room to maneuver. Squeezed by inflation, their issue is how to retain existing employees with the cash they have, not necessarily how to ramp up to meet demand.

Supply chain disruptions: Prime contractor executives collectively stated that after a smooth fourth quarter in FY22, the first quarter of FY23 is seeing some pressure. But they were confident this would be less bumpy as the year progresses. Manufacturers are working to qualify additional suppliers on key programs and secure additional sources for critical commodities and components.

One area of concern remains microelectronics, for which defense firms have been negotiating to get a priority place in line. A reliance on microchips produced in Taiwan — a potential military hot spot — remains a key issue. Any impact from the $280 billion investment from the CHIPS and Science Act passed in August 2022 to boost U.S. domestic semiconductor capability is likely years from being realized.

Staffing: Labor inflation, especially for those with critical skills or security clearances, had firms offering midyear raises to attract or retain employees. Recent layoffs in Silicon Valley and related tech firms could direct commercial software developers and systems engineers to defense sector opportunities.

Structural transformation: The military space-industrial base is undergoing a revolution unlike anything it has experienced since the first defense satellites were developed in the 1950s. An influx of private capital into commercial space companies has been transforming and expanding the space-industrial base for the past several years. Whereas two or three contractors might have had a skill set to meet military and defense community needs in the past, today dozens of new entrants are competing for contracts.

As the U.S. military increasingly shifts to becoming more reliant on commercial providers, it must consider how to identify which, of the hundreds of firms operating today, will still exist to support efforts in future years.

To provide greater stability so private firms can forecast future demand, the DoD is pursuing new approaches to acquisition, including large block buys and multiyear procurements, as well as the recent 10-year deals with three commercial satellite firms providing imaging data. Early adopter deals for products and services to build a local hardware supplier base are also being addressed.

Additionally, the military space community has been working to strengthen private-public partnerships and shift from customized hardware and niche components to those commercially available. Doing so ensures the government doesn’t have to bear the entire cost of development for unique designs, while increasing its agility and access to hardware.

Despite these challenges, the military space-industrial base around the world remains healthy, thanks in large part to an increasing reliance on space systems. There is strong demand in the U.S. for new satellites to meet important missions and a number of substantial classified programs that can drive growth in the coming years.

For investors, publicly traded space firms with defense exposure have seen less volatility than other startups. And whereas space-focused, exchange-traded funds have gained limited traction with investors, the benchmark SPADE Defense Index reached all-time highs in February 2023 and saw inflows of tracked capital triple in the last year to nearly $2 billion.

Scott Sacknoff is the president of SPADE Indexes and manages the SPADE Defense Index.

The administration issued only limited details, but spotlighted $9.1 billion in proposed investments for the Pentagon’s Pacific Deterrence Initiative, meant to bolster U.S. force posture in the region amid increasing tensions with China. The spending plan also includes $37.7 billion for the Defense Department to continue modernizing the U.S. nuclear arsenal.

“This budget cements our commitment to confronting global challenges and keeping America safe,” President Joe Biden wrote in an accompanying message to Congress. “It outlines crucial investments to out-compete China globally and to continue support for Ukraine in the face of unprovoked Russian aggression.”

The budget proposal pledges $6 billion to support Ukraine, though it’s unclear whether that money is for military or economic aid. That figure falls far short of the $113 billion Congress allocated for Kyiv via emergency supplemental spending last year.

Pentagon officials are scheduled to discuss the details of the department’s budget on Monday. The White House proposal also vowed to optimize and modernize U.S. naval shipbuilding, but did not detail any specific dollar amounts.

The document stated that the budget “continues the recapitalization of the Nation’s strategic ballistic missile submarine fleet while investing in the submarine industrial base” and makes “meaningful investments in improving the lethality and survivability of the fleet, particularly improving undersea superiority.” That includes “the recapitalization and optimization of the four public Naval Shipyards to meet future submarine and carrier maintenance requirements.”

According to the administration, the budget also “invests in key technologies and sectors of the U.S. industrial base such as microelectronics, submarine construction, munitions production, and biomanufacturing.”

Funds allocated to the Energy Department will support “the strong technical and engineering foundation” for the trilateral AUKUS agreement between the United States, Australia and the United Kingdom, which the leaders of the three countries are expected to unveil in more detail in San Diego on Monday.

Congressional headwinds

The defense spending proposal is expected to face harsh criticism from Republicans lawmakers, both for being too small to meet global threats and too large to meet deficit reduction goals.

The release of the White House budget draft kicks off the public debate over spending for the next fiscal year, which starts Oct. 1, and negotiating a full-year budget plan is expected to take months. Already, House Republican leaders have simultaneously promised to trim federal spending while boosting funding for national security needs, including the military.

House Speaker Kevin McCarthy, R-Calif., for his part, has vowed to cut at least $130 billion in non-discretionary spending, raising questions as to how the Republican-controlled House can accommodate a defense budget increase.

Some defense hawks, like House Defense Appropriations subcommittee Chairman Ken Calvert, R-Calif., have started looking at ways to squeeze savings out of the Pentagon. Calvert, for instance, has proposed trimming the Defense Department’s civilian workforce.

However, the Biden administration said its budget will “strengthen” the Pentagon’s “civilian workforce as a critical contributor to the nation’s security.”

The Senate’s No. 2 Democrat, Sen. Dick Durbin, of Illinois, on Wednesday, before the White House released the proposal, vented that House Republicans have not offered their own budget plan.

Republicans “want to cut spending, but they want to increase defense spending, and many of us have asked for more money for Ukraine, and we certainly are sensitive to the fact that we have to replenish our own supplies in the process,” Durbin said.

“They keep talking in generalities,” he added. “It’s time to establish what they can pass in the House of Representatives.”

Speaking Wednesday before the budget release, the Senate Armed Services Committee’s top Republican, Sen. Roger Wicker of Mississippi, said any openness to cut defense spending among Republicans is out of step with the majority of the party and suggested McCarthy would buck those views.

“He’s going to make the right decision for the future of our country, and it goes without saying you can’t accommodate two differing positions at one time,” Wicker said. “We are ready to defend our national security interests, and I am getting every signal that this budget will be inadequate and will need to be plussed up.”

The services “spent at least $160 million on cyber retention bonuses annually” from fiscal 2017 to 2021, the Government Accountability Office said in a workforce evaluation published this month. Staffing levels across most related career fields that the auditor studied, including in the Army, Air Force and Navy, remained above 80% in the same timeframe.

Special pay is meant to help ensure the military holds on to its top performers, has people in hard-to-fill roles and maintains much-needed expertise amid rivaling opportunities with outside companies or other federal agencies. The services determine how to distribute the incentives, with guidance flowing from the Department of Defense.

The department’s ability to sustain a ready and sufficient cyber cohort is critical to the shielding of its networks and its most sensitive information as well as the execution of digital strikes or influence campaigns on foreign countries or militant groups. Recruitment woes, however, have consumed headlines; the U.S. Army, for example, suffered a shortfall of 15,000 recruits in fiscal 2022. That left the service 20,000 or so troops short of its end-strength number authorized by Congress.

“To accomplish its national security mission and defend a wide range of critical infrastructure, DoD must recruit, train, and retain a knowledgeable and skilled cyber workforce,” reads the report. “However, DoD faces increasing competition from the private sector looking to recruit top cyber talent to protect systems and data from a barrage of foreign attacks.”

Competition with the private sector — and even within government — for young, highly skilled workers in emerging tech fields is fierce. Big Tech offers nearly uncapped salaries, competitive benefits and workplace flexibility, though recent layoffs are creating a labor pool the government hopes to tap.

To lure in the talent they need, and keep the staff they have, federal workplaces have looked to incentives, monetary and otherwise. In years with staffing gaps, the military services rolled out bonuses and other perks to recruit and retain.

The civilian side of government has taken a similar approach. The White House’s Office of Personnel Management just concluded its annual review of special rate requests for salary adjustments for specific occupations, grades or locations “to alleviate existing or likely significant recruitment or retention difficulties.” Other agencies have deviated from the General Schedule to create job-specific pay systems and invoke special hiring authorities.

Army Cyber Command officials told the GAO that money spent on retention bonuses is offset by the costs of recruitment and training to replace cyber personnel. The replacement cost for a service member in the 17C career field, or cyber operations specialist, who is certified to fill the interactive on-net operator role is about $400,000, while the retention bonus offered to a person with that training is $92,000 spread over six years, the report notes.

Digital fluency is increasingly important, defense and intelligence officials say, as the U.S. ratchets up competition with China and Russia, top national security threats, according to the National Defense Strategy. Both wield significant cyber weaponry: Chinese-sponsored cyberattacks have breached a Navy contractor’s computers, jeopardizing information related to secret work on an anti-ship missile, and virtual Russian belligerence targeted U.S. elections and lubricated its war machine in Ukraine.

As a result, cyber cliques in the U.S. military are expected to expand in coming years. The Army, specifically, plans to double the size of its active-duty cyber forces by the end of the decade.

“You will continue to see the growth of our cyber branch, as we proliferate cyber-electromagnetic activities, capabilities,” Lt. Gen. John Morrison, deputy chief of staff, G-6, told reporters in June. “Think cyber and electronic warfare, integrated together, throughout all of our tactical formations.”

The Army requested $16.6 billion in cyber and information technology funding for fiscal 2023. Congressional leaders last week unveiled a $1.7 trillion government spending package, which included $858 billion for defense.

Davis Winkie with Army Times contributed to this article.