How horrible is it for contractors as calendar 2012 winds down?
Federal contractors vary widely in how they answer that question. Two recent surveys show how differently companies can react to difficult market conditions.
When they reported on the latest Grant Thornton survey of federal contractors, most of the government media presented a gloomy picture. But is it, really? About the same number of respondents (40 percent) say they gained federal contracting revenue in the past year as said they lost it (35 percent). Okay, so last year half the respondents said federal contracting dollars had gone up. What may be more worrisome is that a greater number of contractors are reporting worsening profit from federal business.
If Office of Federal Procurement Policy figures are correct, then some contractors had to realize reduced revenues. OFPP reported that in fiscal 2011, acquisition of both products and services fell 4.5 percent – but much of that is likely tied to the drawdowns in Iraq and Afghanistan for which the DOD uses many overseas suppliers.
We don’t know all of the details because GT has not released the full report at this writing. But the profit drop-off can have a couple of causes. The government’s tendency toward fixed price services contracts, something the administration has been pushing since the beginning, can take a toll on margins of companies without strict cost control and discipline with requirements. It can also stem from not trimming overhead – people, that is – in concert with falling revenues.
In other words, if the market is soft, maybe contractors need to do a better job of managing the business they have, not the business they wish they had. Then, too, we don’t know precisely how many companies or which companies answered the survey.
Judging from its year-earlier survey, The Grant Thornton data tends to be comprehensive, with details on win rates, margins, overhead, strategies and so forth. The information tends to be skewed towards small and medium sized companies. Last year 83 percent of the respondents were privately held. Nearly 80 percent had revenues of less than $100 million.
Health care IT, certain branches of cybersecurity, mobile computing, intelligence modernization, and the slightly ephemeral “big data” represent areas of growth, but is also the avenue for companies new to the federal market.
Another survey was done by Lisa Dezutti’s Market Connections. She heard from more than 170 companies. About half are expecting some sort of federal budget reductions, whether through sequestration or whatever Congress decides to appropriate for 2013 – if it does. Dezutti says contractors are reacting differently. Some are waiting out the storm, hunkered down like sailors in a tossed-about ship. Others are actively branching out, trying to uncover the growth areas, or trying to take business from incumbents. Mobility and cloud computing are among the technology areas the respondents see growing.
Contractors definitely face uncertainty, but the federal market remains large and vibrant. What these surveys show is, now is the time to reach out to new customers, do some heavy business development, and be ready for the stable season that will follow the shaky politics.