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.”
Elliott Branch, the Navy’s deputy assistant secretary for acquisition and procurement, has been named Public Sector Partner of the Year as part of the 10th Annual Greater Washington Government Contractor Awards, the Fairfax County Chamber of Commerce, Professional Services Council and Washington Technology announced Friday.
The award honors “the leadership, innovation and commitment to excellence of the individuals and businesses in the region’s government contracting sector,” the group said in a news release. The awardees helped government contracting and acquisition officials execute a myriad of missions at home and abroad, PSC President Stan Soloway said during a gala honoring award recipients Thursday night.
“These partnerships will become all the more critical as we rise to meet the nation’s almost unprecedented budgetary and security challenges,” he said.
Contractors and company executives who received awards this year are:
Contractor of the Year (less than $25 million): Octo Consulting Group, Inc.
Contractor of the Year ($25-75 million): Blue Canopy Group, LLC
Contractor of the Year ($75-300 million): CALIBRE Systems, Inc.
Contractor of the Year (greater than $300 million): Sotera Defense Solutions, Inc.
Executive of the Year (less than $75 million): Greg Baroni, Chairman & CEO, Attain, LLC
Executive of the Year ($75-300 million): Tony Jimenez, Founder, President & CEO, MicroTech
Executive of the Year (greater than $300 million): Richard Montoni, President & CEO, MAXIMUS
Dr. J. Phillip London, chairman of the board of CACI International, was also inducted into the Greater Washington Government Contractor Awards Hall of Fame for career achievement and long term contributions to the industry.
The nominations period for the 11th annual awards will open in early 2013.
Stan Soloway and Alan Chvotkin over at the Professional Services Council expressed their displeasure with Defense Department insourcing efforts in a May letter to Defense Secretary Robert Gates. Recent congressional attention to the issue hasn’t done much to assuage their concerns.
In a conference call with reporters this morning to discuss the Senate and House versions of the 2011 defense authorization bill, Soloway and Chvotkin said PSC supports an amendment by Rep. Jim Langevin that would prohibit DoD from setting quotas for its insourcing efforts.
However, two other amendments passed by the House seem to conflict with the Langevin amendment, Soloway said. One, proposed by Rep. John Sarbanes, would institutionalize a preference for insourcing; the other, from Rep. Tom Perriello, would forbid DoD from giving firms credit if their benefits costs are lower than the government’s, Soloway said.
Soloway complained that the amendments were passed “with little discussion or debate” and that acquisition issues are receiving insignificant attention from Congress during the defense budget process. The Senate still hasn’t passed its version of the authorization bill, so the final impact on defense acquisition remains to be seen.