Survey: Contractors leaving money on the table

Because of decisions on how to account for their labor rates, many contractors are unknowingly forsaking revenue.

That’s the conclusion of Norm Duquette, a Grant Thornton government contractor specialist. He interpreted some of the results of the accounting firm's annual government contractor survey at an event hosted by the firm Feb. 24.

According to the survey, 35 percent of the respondents said they are using total time accounting. Because of this, they are not charging for all of the hours that go into time and material contract work, Duquette said.

The survey found that 84 percent of contractors are using rate compression, which means that a salaried employee, for example, earns $20 an hour for a standard 40 hours work week. If that salaried employee works more than 40 hours a week on a project, the hourly rate goes down, or becomes compressed, because the contractor is not accounting for the work on a standard rate, Duquette said.

“You are giving that work [over 40 hours] away for free,” he said.

Another finding of the survey is the lack of popularity among contractors for earned value management (EVM) systems. Eighty-five percent of respondents said they wouldn’t use EVM systems if they were not required.

Only 40 percent of respondents said they received feedback from their customers after filing the earned value management reports.

Duquette also said that the survey debunks the belief that government contractors are profiteers. Thirty-seven percent reported that their profit before interest and taxes was 5 percent or lower. Five percent reported no profits.

Only 14 percent claimed profits above 15 percent, he said.