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.

About the Author

Nick Wakeman is the editor-in-chief of Washington Technology. Follow him on Twitter: @nick_wakeman.

Reader Comments

Thu, Feb 26, 2009 Steven Moshlak Centreville, VA

Thank God for C/SCSC, EVMS and DCAS. I bill for every 10th of an hour I work a job. Anybody who is doing performing rate compression is comitting contractor fraud, by not reporting the proper hours. Although the company may not bill for labor hours that are not compensated, they can still bill the overhead rate on O/T since the lights and facilities are still required to perform the work. By compressing the rate and not using EVMS, the contractor can't keep a solid accounting record, which leads to sloppy charging / billing and increases the risks in the slippages in schedule, which can lead to cost overruns. One might argue that the project can save $100,000k by not using EVMS, but this argument is defeated when the overrun far exceeds the reimbursable costs for EVMS.

Thu, Feb 26, 2009 Kathy Charlotte, NC

Thanks for giving us the insights from Grant Thornton's survey. I wish this data would find its way to the general media outlets. Public perception of the government contracting industry is just the opposite of Duquette's information and it's this sentiment that frames politicians' ideas and puts government contractors in the same light as the Financial industry. Of course, we in the industry know that the mission and culture we work in is 180 degrees different from that on Wall Street.

Wed, Feb 25, 2009 Dr. Paul D. Giammalvo

Nick, My experience with contractors resisting the implementation of Earned Value is because those who require or mandate the use of Earned Value don't emphasize what matters most to a contractor- CASH FLOW. IF the connection is made between the prompt and correct completion of work and enhanced or prompt payment, it behooves the contractor to maximize the cash flows, and how best to do that? By completing work on or ahead of schedule; completing it in substantial conformance to the specifications, while fulfilling all the "shall" clauses. It amazes me why government agencies aren't using cash flow as the primary means to entice contractors to use EVM. BR, Dr. PDG, Jakarta, Indonesia

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