Revenues, profits trending downward for many govcon firms

Government contractors are making less revenue and profits largely due to unnecessary and costly compliance requirements, according to a recent survey by the accounting firm Grant Thornton.

Thirty-seven percent of the 2015 Government Contractor Survey’s participants reported lower revenues than in the previous year. While this still is not as great as the number of respondents who said their revenues grew over the last year (42 percent), Grant Thornton noted that the 37 percent is a much higher number than is normally reported.

On a similar note, 52 percent of respondents reported either no profit or low profit in the range of 1 percent to 5 percent of total revenue.

Jobs are on the rise, though. Fifty-nine percent said employment increased at their companies, while only 15 percent reported decreases and 26 percent said there was no change.

As for winning contracts, respondents reported a win rate of 35 percent unless they were an incumbent for a recompete contract, in which case respondents reported a 75 percent win rate.

Sixty-three percent of contractors reported that compliance requirements are excessive and not cost-effective. This percentage was up from last year’s survey when 59 percent complained of compliance costs.

Grant Thornton noted that these requirements are likely to become even more expensive if new Labor Department regulations proposed in May are incorporated into the Federal Acquisition Regulation.

In that vein, 43 percent of contractors reported having a low opinion of their Defense Contract Audit Agency auditor, believing that the auditor’s conclusions are arbitrary. Contractors have an even lower opinion of their contracting officers (49 percent), the survey found.

On the topic of mergers and acquisitions, 56 percent of respondents said they expect the M&A environment to improve over the next year. Thirty-five percent said they expected no change. Of all the contractors who considered an M&A transaction over the past year, 69 percent walked away from the deal. The survey found that this was due to issues discovered during due diligence.