Government Contractors

Industry Profile Report

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

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, 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

                                Coronavirus Update

                                Nov 3, 2021 - Eleven States File Suit to Stop Contractor Vaccination Mandate
                                • The CARES Act provision that reimburses federal contractors who extend coronavirus-related paid leave to their employees and subcontractors was set to expire on September 30, 2020. The provision – Section 3610 – funds contractor employees’ paid leave when COVID-19 has prevented access to government worksites and workers’ jobs could not be performed remotely. President Trump signed a continuing resolution September 30 that continued to fund the government – including Section 3610 - through December 11, 2020. Section 3610 was again extended as part of the $900 billion stimulus bill passed in December 2020. The extension ran to March 31,2021. President Biden’s signing of the American Rescue Plan Act on March 11, 2021 further extended Section 3610 to September 30, 2021. With a government shutdown looming on October 1, 2021, Congress negotiated a deal to extend government spending through December 3, but the agreement didn’t include another extension for Section 3610. Contractor trade groups – including the National Defense Industrial Association and the Professional Services Council have urged Congress to make the protections under Section 3610 permanent by writing them into the National Defense Authorization Act for 2022.
                                • Legal experts suggest the large sums of COVID-19-related money flowing to contractors from the Small Business Administration will further the trend of tighter DOJ enforcement under the False Claims Act. Contractors are urged to make certain of eligibility when applying for contracts and when subcontracting or providing contract support for partner companies.
                                • In the early days of the pandemic, the US government scrambled to get enough emergency supplies where they were most needed, and contract awards were expedited. Under the CARES Act, government contractors also qualified for loans through the Small Business Administration (SBA) by the Paycheck Protection Program (PPP). Some legal experts – including federal auditors - worried the haste in awarding contracts and relief aid may have created a potential for fraudulent “double dipping.” Some federal contractors repaid their loans over the summer of 2020, with interest, to avoid any regulatory or oversight complications, according to the Wall Street Journal. In March 2021, the Government Accountability Office (GOA) placed PPP on its High-Risk List due to concerns about program integrity. That same month, the GOA requested the SBA implement a strategy for PPP fraud risk assessments. In late July 2021, the GOA released a report that suggested that the SBA has improved its oversight of PPP, but more needed to be done. The GOA recommended the SBA finalize the steps of its loan review process and develop and implement a process to ensure timely communication with lenders. In August, researchers at the University of Texas released a report that estimated about 1.8 million – or more than 15% - of PPP loans had at least one indication of potential fraud.
                                • A third round of PPP funding was part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act that was built into a larger fiscal 2021 spending package passed in December. The second round of PPP extended the lending program aimed at helping small businesses retain their workers. The funding included $284 billion for additional PPP loans (that can be forgiven) which are administered by the SBA. Amid concerns that the first rounds of PPP loans were inequitably awarded, the second round prioritized funding for loans by community lenders serving underserved borrowers, including businesses led by women, minorities, and veterans. In March 2021, President Biden signed the American Rescue Plan Act which included an additional $7.25 billion in PPP funding, and kept the application window open until the end of May 2021. Government contractors are eligible for PPP loans, but the Office of Management and Budget notes that contractors must provide the government with credits or reductions in billing for costs paid with PPP dollars, especially if the contractor hopes to have their loan forgiven. The PPP ran out on money on May 11 and stopped accepting most new applications, according to The New York Times.
                                • The US response to the COVID-19 pandemic drove a large jump in spending on government contracts. Since the onset of the pandemic, the US government has awarded nearly 46,000 prime contracts amounting to more than $200 billion. Much of the uptick in spending has been through three major government stimulus bills. The CARES Act passed in March 2020, and a second, $900 billion stimulus bill passed at the end of 2020. Spending increased further under the $1.9 trillion American Rescue Plan Act passed in March. The plan allocates $123 billion for COVID-19-related policy spending, including testing and contact tracing ($50 billion), disaster relief funds ($47 billion), vaccine distribution ($16 billion), and purchase and distribution of medical supplies under the Defense Production Act ($10 billion).
                                • In late January, President Biden signed an executive order aimed at protecting workers and on-site government contractors in government agency offices during the pandemic. The order created the Safer Federal Workforce Task Force which, in cooperation with the Office of Management and Budget (OMB), has issued initial guidance for heads of government agencies to implement COVID-19 workplace safety plans. The guidance outlines protocols relating to several pandemic-related issues including mask-wearing, vaccinations, signage, visitor access, symptom screening, and building operations.
                                • A Pentagon policy change early in the pandemic helped keep many smaller defense subcontractors afloat, according to Government Executive. The policy allowed prime contractors – such and Lockheed Martin and BAE Systems – to receive a larger share of contract payments upfront which allowed them to pass the money on to smaller subcontractors. The policy change was particularly helpful for aerospace subcontractors that saw demand from the commercial aircraft market dwindle amid the drastic drop in airline traffic. Such companies were able to pick up the slack with higher upfront payments for their military contracts. About 75% of member companies in the Aerospace Industries Association say they benefitted from the increase in upfront payments. Since the onset of the pandemic, the Pentagon has dispersed $4.6 billion to defense firms, according to Bloomberg. Contractors would like Congress to pass legislation that would make the Pentagon’s policy change permanent.
                                • In late July 2021, the Safer Federal Workforce Task Force announced that every federal government employee and on-site contractor will need to attest to their vaccination status. On August 23 the Pfizer-BioNTech vaccine received full FDA approval. September 9, the Biden Administration announced that all federal workers and on-site government contractors will need to be vaccinated. The requirements will be implemented through a temporary standard to be issued by OSHA. On September 24, the Safer Federal Workforce Task Force announced that contractor workers affected by the prior vaccine mandate must show proof of vaccination by December 8 unless they have been granted an exemption based on religious beliefs or disability. On November 1, the Biden administration released additional guidance on the vaccine mandate for government contractors, giving contracting firms greater implementation flexibility. The guidance clarified that December 8 is not a hard deadline by which all contractor employees must be vaccinated, but rather contractors should by that date have plans in place for ensuring workers are getting vaccinated and that they are following masking and distancing protocols. The guidance also said that noncompliance could lead to contract losses and that unvaccinated contractors could be barred from entering a federal workplace.
                                • In late October, 11 Republican-led states filed suit to challenge President Biden requiring federal contractors to be vaccinated on the grounds that it is unconstitutional, according to Government Executive. On October 28, the state of Florida filed suit seeking an injunction against the mandate in the US District Court for the Middle District of Florida. The following day, Alaska, Arkansas, Iowa, Missouri, Montana, Nebraska, New Hampshire, North Dakota, South Dakota, and Wyoming also sought an injunction through a similar lawsuit filed in US District Court for the Eastern District of Missouri. The Florida suit alleges several counts of violations of federal contracting and administrative procedure laws. In response to the lawsuits, an Office of Management and Budget spokesperson claimed the president has the authority to use mandates to promote contracting efficiency, and that the Department of Justice and the Equal Employment Opportunity Commission has already determined that employers have the right to mandate vaccines.
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