More contractors see decline in federal revenue

For the first time in a long time, more federal contractors reported decreases in their government contracting revenue last fiscal year than those who saw increases, according to a Grant Thornton survey of about 100 contractors.

Thirty-eight percent of contractors suffered reductions in revenue over the past year, compared with 36 percent that saw revenue increases and 26 percent that experienced no significant change, according to the annual Government Contractor Survey released last week. Professional Services Council sponsored the survey.

“This year’s survey shows more revenue shrinkage than growth and a plunge in net profit, with the majority of contractors seeing a tiny profit or none at all,” the survey said. “This despite reducing headcount and overhead, holding wages at generally the same level as in the last two years, cutting [general and administrative expenses]and benefits, and doing just about all a company can do to sustain profits. Contractors are up against costs that can’t be slashed and must be absorbed: indirect, health care, overtime and, for many, out-of-scope work.”

Companies said that 84 percent of their revenue came from federal business, which is the lowest reported over the past six years. Last year, federal business made up 93 percent of companies’ revenue.

Defense Department contractors were the hardest hit. Revenue from DoD contracts dropped 16 percentage points to 47 percent. However, revenue from civilian agencies rose 7 percentage points to 37 percent. State and local revenue accounted for 7 percent and commercial revenue made up 9 percent of companies’ revenue.

The survey assumes that reduced defense spending, changing priorities for the administration and insourcing are to blame for contractors’ revenue decline.

Overall, the median turnover rate for companies was 8.5 percent. Most of the companies surveyed sell professional services to the government, which may explain the high turnover rates. It’s common for employees to accept jobs with the winning vendor if their company loses a follow-on contract, the survey said.

When asked how often their companies won non-sole-sourced contracts, the median rate was 30 percent. When the company was the incumbent, that number rose to 50 percent.

In some cases, however, bid protests are triggered when incumbent vendors receive far lower scores than their competitors, despite having a stellar performance record, the survey said. “It should be noted that with the increased use of lowest price, technically acceptable contracts, the incumbent’s advantage is virtually erased.”