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Contractors expect higher profits in 2016

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GrowthThere is plenty of good news in Deltek’s latest Clarity survey of the government contracting industry, including reported increases in profits and growth, the first time both have increased in the same year.

Net profits are expected to be in the 10 percent range in the coming year and growth rates should hit 11 percent, according to the survey results. Both are up from last year’s results. The Clarity report is based on a 100-quesiton survey taken by 583 people in the government market.

In addition to increases in profits and growth, respondents to Deltek’s survey see four other major trends:

  • Oversight levels out but will intensify
  • Talent management remains a focal point
  • Data security is a top concern
  • Market diversity is seen as a key success factor

Keep reading this article at: https://washingtontechnology.com/blogs/editors-notebook/2016/05/deltek-clarity-report-results.aspx

Government contractor profits continue to rise

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While the federal contracting industry is by no means recovered, the future looks a good deal brighter than it did just a few months ago.

The two-year budget agreement has partially mitigated the impact of sequestration and greatly reduced the risk of a government shutdown. The agreement brought some stability and predictability to a market that has been starved of both for several years.

Each year, Deltek conducts a Clarity study assessing critical business metrics in the government contracting industry, such as growth rates and profit margins, plus operating metrics and trends, in areas such as business development, program management and financial operations.

The early results reflect the improved outlook resulting from the budget resolution. Yet, as one would expect, certain financial metrics — such as profits, mergers and acquisitions and win rates — reflect the difficult year that was 2013.

Keep reading this article at: http://www.washingtonpost.com/business/capitalbusiness/deltek-contractor-profits-continue-to-rise/2014/03/14/e2f0ffc0-a8ab-11e3-8d62-419db477a0e6_story.html 

Are contractors at risk of a flame out?

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Retired Vice Adm. Lewis Crenshaw Jr. is a former Navy aviator so you have to forgive his aviation analogy, but in presenting accounting firm Grant Thornton’s annual contractor survey he made a convincing case that many companies in the market are dangerously close to stalling out.

On the surface, some of the numbers look good: 50 percent of the respondents said revenues were up. But that is down from last year’s survey that showed 55 percent reported growth.

Also troubling, is that 29 percent reported a decrease in revenue, compared to 22 percent last year.

Companies also reported profit margins in keeping with previous surveys, but the profits aren’t coming from revenue growth, Crenshaw said, but from controlling costs.

The aviation analogy for Crenshaw, now the national practice leader for Grant Thornton’s aerospace and defense market sector, is that you can only slow your airplane down for so long before it stalls and then you crash and burn.

“Next year’s numbers should be very interesting to look at,” he said.

Another warning sign is the assets to liability ratio, where 60 percent of companies reported a ratio of two or less.

“You’re not in good shape with that and it supports my stall analogy,” he said.

Grant Thornton’s annual survey asks companies about a variety of financial and business factors, including financial statistics, compensation, business strategies and contracting issues such as delays and terminations and issues dealing with government customers.

The accounting and consulting firm uses the survey to present a benchmark of the market and as a platform for discussing trends in the market.

Some of the highlights of its findings include the fact that firm-fixed-price contracts have not grown in use, according to the respondents and remains at about 20 percent of contracts.

“Despite the rhetoric it hasn’t changed year-to-year,” Crenshaw said.

Companies reported that the use of task order contracts rose by 50 percent and that less than 45 percent of revenue came from these contracts.

Another interesting finding was that 81 percent of the companies reported that they were asked to do out-of-scope work on contracts and 84 percent of those did the work. Surprisingly, only 25 percent filed for adjustments to their contracts.

“Out-of-scope work might become a bigger issue if more contracts go to firm-fixed price,” Crenshaw said.

About the Author: Nick Wakeman is the editor-in-chief of Washington Technology.  This article was published on Mar. 7, 2012 at http://washingtontechnology.com/articles/2012/03/07/grant-thornton-contractor-trends.aspx?s=wtdaily_090312.

Signs of friction in contractor-government relations

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Contractor relationships with federal auditors and contracting officers
deteriorated somewhat during the past year as government agencies scaled back
programs in an effort to reduce the budget deficit, according to a recent
survey.

A separate study released Thursday found that large companies were securing a
high percentage of federal contracts set aside for small businesses. In the 17th Annual Government Contractor Industry Survey released Monday by Grant Thornton LLP, contractor relationships with auditors were rated
either fair or poor by 19 percent of surveyed companies, up from 11 percent the
previous year. Relationships with contracting officers were rated fair or poor
by 10 percent of respondents, double the previous year’s total.

Only 22 percent of respondents said the government resolved contract disputes
efficiently, a drop from previous surveys.

Revenue from government contracts during the past year grew for 50 percent of
the companies, was flat for 21 percent and declined for 29 percent, the survey
found. “The fact that the highest percentage of companies experienced revenue
growth continues a long-term trend reported in previous surveys, indicating that
government contractors are far less vulnerable than commercial companies to
recessions or slow growth in the overall economy,” Grant Thornton analysts
said.

“However, the 29 percent of companies experiencing revenue reductions is the
highest percentage reported in several surveys, indicating that government
efforts to reduce deficits are adversely impacting government contractor
revenue.”

The survey went out to an unspecified number of companies, in 24 states, that
depend primarily on federal contracts; most of them are for-profit and
two-thirds provide services to the Defense Department. Forty-six percent are
small businesses.

The survey also found that profits improved slightly from the previous year.
The biggest cost factor within these firms was executive compensation, and
survey analysts said they disagreed with the methods the Defense Contract Audit
Agency uses in determining whether to allow such costs.

“While government contracting has never been a model of efficiency, it is our
view that the decline in efficiency and business relationships during the past
few years can be traced directly to changes in DCAA policy adopted after
[Government Accountability Office] reports were issued in July 2008 and
September 2009,” they wrote.

“Unfortunately, the GAO criticized the DCAA for having a management and
agency culture that focused on a production-oriented mission, emphasizing the
need for timeliness in supporting the needs of contracting officers in the
procurement process,” the survey said.

Regarding the average time for contractors to collect accounts receivable
from the government, results showed the period was less than 30 days for 21
percent of survey participants, while 60 percent reported receivables were
collected within 30 to 60 days. The remaining 19 percent reported waiting more
than 60 days.

The average win rate on proposals submitted in a competitive environment was
30 percent.

On the topic of revenue by type of contract, the companies said, on average,
45 percent of revenue was from cost-reimbursable contracts and 35 percent was
from time-and-materials contracts. The remaining 20 percent was from firm
fixed-price contracts.

When asked how often they were required to perform out-of-scope work without
a contract modification, 81 percent said frequently or occasionally. Only 16
percent said they refused such requests.

A separate contracting study by the Petaluma, Calif.-based American Small Business
League found that of the top 100 companies receiving federal small business
contracts, 72 were large companies that “significantly exceed” the Small
Business Administration’s small business size standards; only 24 were
“legitimate small business,” the league said.

The large companies — among them Lockheed Martin Corp., Rolls-Royce, Boeing
Co., General Dynamics and Blue Cross Blue Shield — accounted for $16 billion of
the $21 billion total for the top 100, the study found.

– by Charles S. Clark, Government Executive, February 23, 2012 at
http://www.govexec.com/contracting/2012/02/signs-friction-contractor-government-relations/41283

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