Government Contractors

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 200,300 government contractors in the US sell a wide range of goods and services to agencies of the federal government, state governments, and local governments. Goods range from advanced military jets and weapon systems to office supplies. Services range from complex information systems design to janitorial services and food contracting services. Contract types vary from firm fixed price contracts to cost reimbursement or time and materials contracts.

Qualifying For Procurement Preferences

Contractors will be at a competitive disadvantage in winning federal government business if they do not qualify as a preferred vendor.

Cost Overruns Hurt Profits

Government contractors must possess strong project management skills to successfully manage large, complex projects and avoid cost overruns.

Industry size & Structure

The average government contractor generates about $5-6 million in annual revenue.

    • The government contractor industry consists of about 200,300 firms that generate $1.1 trillion in annual revenue.
    • The federal government spent $1 trllion in FY 2021 on contracts, or 11% of the total federal budget. State government contract spending on goods and services was over $423 billion.
    • There are over 41,600 defense contractors in the US.
    • The largest government contractors are Lockheed-Martin, Northrup Grumman, Boeing, SAIC, Raytheon, General Dynamics, Hewlett-Packard, and Booz, Allen & Hamilton.
                                Industry Forecast
                                Government Contractors Industry Growth
                                Source: Vertical IQ and Inforum

                                Recent Developments

                                May 16, 2024 - Weak Sales Growth Expected
                                • Government contractor industry sales are forecast to grow at a 3.29% compounded annual rate from 2024 to 2028, slower than the growth of the overall economy, according to Inforum and the Interindustry Economic Research Fund, Inc. Government spending on services increased 0.2% year over year during Q2 2023, according to the US Bureau of Economic Analysis.
                                • A federal appeals court upheld a Biden administration rule requiring government contractors to pay seasonal recreational workers at least $15 an hour. The ruling states that the president's authority under federal law to create an "economical and efficient system" of procurement extends to dictating the wages of workers even when they do not directly provide services to the government. Michael Poon of the Pacific Legal Foundation, a libertarian group that represents the plaintiffs, said that the decision "gives the President unlimited unilateral power to impose any conditions at any time on any person or company who holds a federal permit, allowing him to personally commandeer vast portions of the American economy."
                                • Defense contractors and companies in the DOD supply chain can expect the US Department of Defense (DOD) to increase the amount of resources dedicated to monitoring merger and acquisition (M&A) activity in the market and to increase its scrutiny of transactions, according to the Holland & Knight law firm. The DOD's stated policy is to review M&A activity for potential risks to national security, innovation in the defense industrial base, higher costs to the federal government, and antitrust concerns, but the Government Accountability Office (GAO) found that this is generally not occurring. The DOD is also not routinely reviewing transactions for the potential benefits of M&A, such as improving the financial health of key suppliers or monitoring longer-term outcomes of M&A after a transaction closes. The GAO has made recommendations regarding the DOD's approach to M&A review. The DOD concurred with these recommendations and has outlined certain actions that it intends to undertake to address them.
                                • The National Defense Authorization Act (NDAA) for Fiscal Year 2024, which was signed into law in late 2023, has implications for government contractors ranging from new restrictions on greenhouse gas emissions certifications to potential new opportunities for contractors that develop artificial intelligence and cybersecurity solutions, according to the Morgan Lewis law firm. The NDAA also makes several amendments to the Small Business Act to provide enhanced payment protections for small business subcontractors, increase the goal for service-disabled veteran-owned small business (SDVOSB) participation, and impose new certification requirements for SDVOSBs. The NDAA promotes the use of artificial intelligence (AI) by Department of Defence (DoD) subagencies through the creation of new opportunities for the use and development of AI emergent technologies in connection with defense operations. Government contractors can expect the further integration of AI into defense operations to lead to new contract opportunities. The NDAA could complicate the promulgation of current and proposed Federal Acquisition Regulation measures because it prohibits DoD subagencies from requiring defense contractors to disclose greenhouse gas inventories or make any other report on greenhouse gas emissions a condition of receiving a contract award.
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