According to a new report from consulting firm Grant Thornton LLP, half of federal contractors surveyed experienced revenue boosts from federal business during the past year.
Despite the continued recession, only 20 percent of respondents to the accounting firm’s 15th annual Government Contractor Survey reported a decrease in revenue from federal business in the last 12 months.
“The revenue trends experienced by surveyed companies illustrate the conventional wisdom that government spending never experiences a recession,” said Kerry Hall, head of Grant Thornton’s government contractor practice. “While the commercial sector of the economy has been suffering from major business disruption, financial losses and employee cutbacks, government contracting remains a growth industry.”
About one-third of respondents said they anticipated modest revenue increases from the stimulus package; only 4 percent said they anticipated significant increases from the spending spree. The rest of respondents reported that they didn’t expect to see a measurable change in their business as a result of the stimulus.
The survey’s participants earned approximately 91 percent of their total revenue from government contracts, the same proportion as the 2008 report. The percentage of revenue earned through Defense Department contracts, however, decreased slightly from last year, breaking with recent trends. Revenue from Defense contracts had grown steadily during the past few years, from 56 percent to 65 percent, according to Grant Thornton’s last three surveys.
“It is likely that the small decrease in revenue from DoD contracts in the 15th annual survey may have been caused by the winding down of government contracting operations in Iraq,” the report said.
Despite the relative stability of the federal market, contractors continue to report modest profits. Almost half (45 percent) of surveyed companies said they earned either no profit or profit rates between 1 percent and 5 percent of revenue. This is a notable increase from last year, when 37 percent of respondents reported profits in this low range.
Contractors cited two ongoing issues that might affect business in the upcoming year: changes in the Defense Contract Audit Agency’s management and audit procedures and expanded ethics and compliance requirements.
The majority (86 percent) of contractors reported positive relationships with DCAA auditors, although 11 percent said their relationship with DCAA has worsened during the past year, compared to only 3 percent who said relationships with their agency contracting officers have deteriorated. Grant Thornton noted that DCAA’s response to severe criticism from the Government Accountability Office during the last year likely will increase risk to contractors.
“Given the changes currently taking place within DCAA, we expect the relationship with DCAA to be less positive in next year’s survey,” the report stated.