Survey finds that majority of contractors increased revenue during 2007

More than half of government contractors increased their revenue from federal business during fiscal 2007, according to an annual contractor survey released by the consultancy Grant Thornton LLP on Monday.

Fifty-five percent of the 120 contractors surveyed reported growth in revenue during fiscal 2007. Only 18 percent reported a decline, with the rest maintaining steady revenues.

Participants in the survey earned 90 percent of their total revenue from government contracts on average, the same percentage as reported in the last survey, which covered financial data from fiscal 2006. Revenue from the Defense Department grew from 60 percent in fiscal 2006 to 65 percent in fiscal 2007, while revenue from other federal agencies fell five percentage points, from 30 percent to 25 percent.

Despite the increase in revenue in fiscal 2007, the average contractor still earned modest profits, according to Grant Thornton.

"Contrary to public and media perceptions, government contracting is not a business that generates abnormally high earnings," said Kerry Hall, the consulting firm's government contractor practice leader. "One could argue that profits are unusually low, particularly when you consider the performance and financial risks inherent in government contracting."

More than a third of companies surveyed reported either no profit or a pretax profit between 1 percent and 5 percent of gross revenue for fiscal 2007. Another 39 percent had profits between 6 percent and 10 percent. Only 14 percent reported profits of 15 percent or more. The percentages were similar for fiscal 2006.

The survey showed contractors are investing more in management and support personnel, who now account for 16 percent of their staff. Grant Thornton noted that recently implemented compliance system requirements could explain the high percentage of support staff compared to previous years.

Respondents to the survey -- conducted in 2008 though it reflected fiscal 2007 financial data -- overwhelmingly said they had a strong relationship with their primary auditors, including the Defense Contract Audit Agency. While it was a somewhat rocky year for DCAA, the majority -- 88 percent -- of respondents to the 2008 survey said their relationship with DCAA was good or excellent, while only 12 percent reported it was fair or poor. Six percent of respondents said their relationship with DCAA had deteriorated from the previous year, compared to 10 percent in the 2007 survey. Eighty-six percent of respondents said their relationship with the audit agency was the same as the previous year.