Revenue grew in 2011 for half of government contractors
During the past year, revenue from government contracts grew for 50 percent of contractors, while 21 percent experienced no significant change and 29 percent experienced reductions in revenue, according to Grant Thornton LLP’s 17th Annual Government Contractor Industry Survey. The respondents to the survey work for all levels of government: federal, state and local.
“The fact that half of the contractors experienced revenue growth continues a long-term trend that government contractors are far less vulnerable than commercial companies to recessions or slow growth in the overall economy,” said retired Vice Adm. Lewis (Lou) Crenshaw Jr., Grant Thornton LLP’s National Aerospace and Defense practice leader. “However, the 29 percent of companies experiencing revenue reductions is the highest percentage reported in several surveys, which may indicate that the government’s efforts to reduce deficits are having a negative impact on contractor revenue.”
Asked how he sees the current and coming year shaping up, Crenshaw told Govpro, “2012 seems to be a year of opportunity for government contractors, especially in the defense sector, because the Department of Defense is not under a Continuing Resolution. Those companies that are positioned in the Pentagon’s growth areas (cyber security, special operations, unmanned vehicles, energy efficiency and health care) stand to benefit the most.”
Crenshaw explained that uncertainty about fiscal year 2013 spending is consuming more and more management attention at contractors. “I suspect one reason profit numbers are up is because companies have leaned their operations in anticipation of reduced government spending in FY12 and beyond, and I anticipate rough waters ahead as internal costs continue to grow while government spending decreases. Companies will simply not be able to sustain profit margins in that environment.”
Nearly one-third of participants (31 percent) reported profit rates of between 1 percent to 5 percent as a percentage of revenue; 37 percent experienced profit rates of 6-10 percent; 18 percent saw profit rates between 11 percent and 15 percent; and 8 percent reported profit rates above 15 percent. “This is a significant improvement from the last two surveys,” the company said in a statement.
Other highlights from the survey include:
- The average time to collect accounts receivables from government contracts was less than 30 days for 21 percent of survey participants, while 60 percent reported receivables were collected between 30 to 60 days.
- On average, survey participants reported a 30 percent win rate on proposals submitted in a competitive environment for new work. This rate is consistent with the win rates reported in previous surveys.
- Indirect cost rates are increasing at 39 percent of the surveyed companies and decreasing at 23 percent of the companies.
The relationship between contactors and government auditors and contracting officers has deteriorated, according to the survey. The relationship with auditors was rated as fair or poor by 19 percent of the surveyed companies, compared with 11 percent in the 16th annual survey. The relationship with contracting officers was rated fair or poor by 10 percent of the participants in the 17th annual survey, compared with 5 percent in the previous survey.
The survey is designed to cover sensitive areas that can directly affect the revenue and profitability of a government contractor, and to help firms remain competitive in the marketplace. The survey report includes suggestions on how to safely navigate contractual and financial issues that may arise during the performance of government contracts.
here to download a copy of Grant Thornton LLP’s 17th Annual Government Contractor Survey Highlights Book.