Survey Finds Contractors Face Profit Squeeze Government contractors’ “profit rates are not only low, but they are shrinking,” according to a survey by the accounting firm Grant Thornton. In 2009 nearly half of surveyed companies, including small, midsize and large businesses, reported profit rates before taxes between zero and 5%; 85% said profit rates were 10% or less, compared to 76% in the previous year’s survey. Almost all the companies surveyed were professional services contractors. Half the companies said their federal revenues increased last year, while 20% suffered declines. Nearly two-thirds of contractors said they anticipate no significant revenue increases from the Recovery Act. The companies said 63% of their revenue came from Defense Department contracts, slightly less than the year before. Cost reimbursement contracts accounted for 46% of revenue, a sharp increase from 28% five years ago. Another 35% of revenue came from time-and-materials contracts. The Obama administration has made those contract types a target of its acquisition reform efforts, which emphasize greater use of fixed-price contracts. Other issues covered in the survey: Proposal win rates. Survey participants report a 30% win rate from proposals for non-sole source business. The win rate jumps to 60% when the company establishes a special business unit such as a joint venture or a limited liability corporation to bid the work. Executive compensation remains the cost element most frequently challenged by the Defense Contract Audit Agency. Grant Thornton said DCAA’s methods forquestioning these costs tend to be weak and can be challenged from several perspectives. Management and support headcount. At 14.6%, management and support headcount as a percentage of total headcount is consistent with the average from the last three annual surveys. Labor multipliers inclusive of fee have decreased compared to last year’s survey. The multiplier for company site direct labor fell from 2.4 to 2.1 and for customer site labor from 2.0 to 1.8.