DOD taps GMU to study financial dynamics of contracting

George Mason University's Center for Government Contracting has secured funding to conduct four studies related to the Defense Department’s effort to better understand financial and pricing dynamics of contracting.

The center will start its research later this month and work on the study over the next eight months, GMU said in a release.

DOD awarded more than $1 million for the studies that will focus on these four elements:

• Free cash flow in the defense sector
• Impacts to cash flow depending on contract type and financing
• Financing and its impact on small businesses
• Government accounting system requirements for contractors

Item number four in the above list touches on an ever-present talking point in this market: the willingness of commercial companies to do business with the federal government.

This is also the first comprehensive analysis of DOD’s finance policies in over three decades, the Mason GovCon center said. Late last year, GMU along with the Universities of Virginia and Tennessee were awarded blanket purchase agreements for similar studies.

Cash flow has always been king for government contractors given federal agencies are reliable bill payers. That implies a more stable source of revenue than from customers in other sectors even with profit margins typically being lower in government versus commercial markets.

The coronavirus pandemic certainly illuminated that factor given how many companies and especially small businesses have reported varying financial stresses since March 2020.

Those overhangs apparently remain over defense companies even with the pandemic subsiding and DOD’s efforts to help minimize the impacts. At the pandemic’s outset, DOD raised the rate of progress payments for large companies from 80 to 90 percent and small businesses from 90 to 95 percent.

But the situation is not over yet for some. Nearly one-third of respondents to a National Defense Industrial Association survey released in mid-June said they do not expect their businesses to return to normal operations for at least six months.