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

                                Jan 4, 2024 - Moderate Sales Growth Expected
                                • Government contractor industry sales are forecast to grow at a 4.1% compounded annual rate from 2022 to 2027, comparable to 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.
                                • 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.
                                • A US Department of Labor agency that monitors federal contractors and subcontractors for compliance with workplace antibias laws has requested information on the technology tools used to recruit or hire employees. The Office of Federal Contract Compliance Programs’ updated supply and service scheduling setter and itemized listing, effective as of August 24, requires government contractors that the agency plans to audit to provide information on recruitment and hiring practices and systems including those using “artificial intelligence, algorithms, automated systems, or other technology-based selection procedures.” Nearly one in four organizations uses artificial intelligence in a human resources capacity, according to a 2022 Society for Human Resources Management survey.
                                • Foreign hackers are targeting US government contractors to access their intellectual property and non-public information and to find access to Pentagon networks, according to the director of the Defense Information Systems Agency. The National Security Agency, FBI, and other federal entities said in October 2022 that hackers infiltrated a defense industrial base organization, maintained “persistent, long-term” access to its network, and absconded with sensitive data. Chinese-sponsored cyberattacks breached a Navy contractor’s computers a few years earlier, jeopardizing information tied to secret work on an anti-ship missile, Defense News reported. The Biden administration’s national cybersecurity strategy labels China as the top cyber threat, capable of siphoning data and contorting information for its own authoritarian gain. Russia, the strategy says, remains a significant cyber threat and is refining its espionage and influence skills.
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