Feb 20, 2008

Contractors may not profit from government work nearly as much as most watchdogs and politicians think they do, a new survey of contractors shows.

Sixty-nine percent of government contractors generated profit rates of less than 10 percent from their government business and 7 percent generated no profits at all, according to Grant Thornton’s annual survey of government contractors.

“Contrary to recent public and political perception, government contracting is not a business where companies generate abnormally high profits,” said the Tuesday report. Only 12 percent of responding companies said they generated profits of more than 15 percent from their government contracts in fiscal 2006.

More than 100 government contractors, mostly service providers, responded to Grant Thornton’s survey, which was conducted last year.

Most contractors said they view government contracting as a greater business risk than many other commercial ventures.

“Outstanding performance is never enough to secure the future for government contractors,” the report said. “Government contract terms and conditions impose unique compliance burdens in practically all aspects of the company’s business, and those burdens are continually increasing.”

One way the government burdens contractors is by using cost-reimbursable contracts 40 percent of the time, according to the survey. These contracts require more audits, reporting and investigations than commercially styled fixed-price contracts, according to the report.

Often changing budget priorities can often derail programs, making government work more risky. Audits and ethics requirements also increase the risk and cost of contracting with the government, the survey said.

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