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Defense accounts for smaller portion of contracting in 2009

Jan. 18, 2010 - 06:00AM   |  
By ELISE CASTELLI   |   Comments
Civilian contractor M.J. Oldham, 48, of Austin, Texas, installs an armor kit on a Humvee at Camp Arifjan, Kuwait. Government contractors said the percentage of their work derived from the Department of Defense dipped slightly in 2009, compared to 2008.
Civilian contractor M.J. Oldham, 48, of Austin, Texas, installs an armor kit on a Humvee at Camp Arifjan, Kuwait. Government contractors said the percentage of their work derived from the Department of Defense dipped slightly in 2009, compared to 2008. (FILE PHOTO)

Government contractors still received more than 90 percent of their revenues from government contracts last year, but less of that is coming from the Defense Department, according to a newly published Grant Thornton survey of government contractors.

In 2009, contractors reported 91 percent of their revenue came from government contracts, "almost identical to the 90 percent in last year's survey, except that revenue from Defense work dropped from 65 percent to 63 percent, while revenue from other federal agencies grew from 25 percent to 28 percent," Grant Thornton found in its 15th Annual Government Contractor Survey released Monday.

Defense revenues had grown year over year since 2006, when companies reported 56 percent of their revenues came from Defense contracts. The drop between 2008 and 2009 "may have been caused by the winding down of government contracting operations in Iraq," the latest survey said. "The increase in revenue from other agencies may also be the result of stimulus funding, a substantial portion of which is being spent by federal agencies other than DoD."

In addition, contractors reported that 46 percent of their government contract revenues were generated from cost-reimbursement contracts in 2009, up one percentage point from 2008 and up six percentage points from 2007. These contracts allow vendors to collect their actual costs of doing business up to a ceiling price, with special "award fees" applied to encourage vendors to keep costs in check. President Obama wants agencies to use less of these types of contracts because they put the government at risk of being overcharged.

Instead, the White House wants agencies to use fixed-price contracts, which set the total cost of a project up front. Revenue from fixed-price contracts remained at 20 percent in 2009 but is down 12 percentage points from 2007.

Contractors, however, would like to see government use a third type of contracting more often: time and materials contracts. These contracts, which allow contractors to be reimbursed at prenegotiated rates for the actual time and materials expended, are de rigueur in the commercial sector, the contractors told Grant Thornton. The Federal Acquisition Regulation, however, states these are contracts of last resort because there are no award fees or other incentives for contractors to control the cost of doing business.

Revenue from time and materials contracts fell one percentage point in 2009 to 34 percent of revenues. This is up from 2007, however, when 28 percent of revenues came from time and material contracts.

Although overall revenues from government contracts remained steady in 2009, the percentage of contractors that reported they received no profit from their government work grew nearly 10 percentage points. In 2009, 14 percent of those surveyed said they had no profits, up from 5 percent in the previous survey.

Most respondents, approximately 40 percent, said they received profits between 6 percent and 10 percent from their government work. In 2008, 39 percent of respondents reported similar profit levels.

Only 3 percent said they banked profits of more than 15 percent from their government contracts in 2009, down from 14 percent the previous year.

The reported profits do not account for taxes, which will consume 40 percent of anything banked, according to the survey.

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