Contractors Report Thin Profit Margins More than three-fourths of government contractors reported pre-tax profit of 10% or less, according to a survey by Grant Thornton. More than 40% of the companies responding said their profits were no greater than 5%. “Contrary to recent public and political perception, government contracting is typically not a business that generates abnormally high profits,” said Kerry Hall, partner-in-charge of Grant Thornton’s Government Contractor Industry practice. Survey participants report a 33% win rate from proposals for non-sole source business. The win rate jumps to 58% when the company establishes a special business unit, such as a joint venture or a limited liability corporation to bid the work. Other findings of the thirteenth annual survey: •52% of respondents experienced revenue increases during the past year, continuing the trend from previous years. •72% of respondents expect future increases in revenue from federal prime contracts. •Executive compensation remains the most frequent cost challenged by government auditors. •The companies said they received 40% of their revenue from cost-reimbursable contracts, 32% from fixed-price and 28% from time-and-materials contracts. “It is difficult to reconcile the high use of cost reimbursable contracts with the notion that the government is attempting to use more commercial processes to streamline federal procurement,” Grant Thornton commented. “The commercial environment generally uses fixed price time and material contracts while the government continues to maximize the use of cost reimbursable contracts.” Surveyed companies derived 90% of their revenue from federal contracts, a percentage that has been growing steadily for several years. Grant Thornton said more than 100 contractors responded to the survey in mid-2007. The vast majority of them were privately held and operated in various categories of professional services.