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 216,400 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 $4-5 million in annual revenue.

    • The government contractor industry consists of about 216,400 firms that generate $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

                                Mar 3, 2023 - Federal Debt Limit Standoff Could Upend Industry
                                • Federal contractors would be among the first to experience serious financial consequences if the US Congress fails to raise the federal debt limit, according to Bloomberg Law. Lawmakers raised the debt limit to $31.4 trillion in December 2021. That limit was reached in January 2023. The Congressional Budget Office said that without congressional action, the federal government will no longer be able to borrow funds to meet its obligations using “extraordinary measures” for accounting for debt starting at some point between July and September. That date could come sooner if revenues collected over the next three to four months are lower than anticipated. The government’s fourth fiscal quarter is typically the busiest part of a contractor’s year, according to Bloomberg Law. Agencies spend about one-third of their annual procurement dollars from July through September, so fourth quarter contract disruptions could have devastating financial consequences for the federal vendor base.
                                • US officials are pressing the defense industry to boost production rates and are using various tools to accelerate acquisition timelines, according to Bloomberg Law. Measures includes the use of “undefinitized” contract actions, where terms, specifications, or price are not agreed upon before the contractor’s performance begins. IDIQs, known as indefinite delivery/indefinite quantity contracts, are also being used. Under Secretary of Defense for Acquisition and Sustainment William LaPlante said that the US is “committed to getting things on contract as quickly as possible, ultimately to send that clear and persistent demand signal to our partners in industry.” The Fiscal Year 2023 National Defense Authorization Act (NDAA) was signed into law in late December 2022. The defense bill, which sets the annual topline for national defense at $858 billion, outlines the policy agenda for the Department of Defense and the US military, and authorizes spending in line with the Pentagon’s priorities. It does not appropriate the funding itself. Much of the increase for fiscal year 2023 is intended to address the effects of inflation and accelerate the implementation of the national defense strategy. The NDAA includes provisions to strengthen air power, land warfare defense capabilities, and cybersecurity.
                                • The Biden administration has proposed a rule that would require all major federal contractors to set targets for reducing their emissions in line with the 2015 Paris climate accord. The rule would also mandate that federal contractors publicly disclose their greenhouse gas emissions and the risks they face from climate change. The federal government is the world’s largest buyer of goods and services, purchasing more than $630 billion in the last fiscal year alone. President Biden has previously called for the government to become carbon-neutral by 2050.
                                • Government contractors are likely to benefit from project funding approved in the Inflation Reduction Act signed into law in August 2022. Green procurement funding, for example, includes $2.15 billion to install low-carbon materials in General Services Administration-owned buildings; $2 billion for Low-Carbon Transportation Grants to reimburse and incentivize the use of low-carbon materials for Federal Highway Administration projects; $250 million to develop and standardize Environmental Product Declarations for construction materials, with grants and technical assistance for manufacturers; and $100 million to identify and label low-carbon materials and products for federally funded transportation and building projects.
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