Nearly 40% of federal vendors experienced a drop in revenues in 2012, and profits also hit a low point, according to a new survey.

About 38% of federal contractors reported reduced revenues for the year, while 35% saw revenues increase, said Lou Crenshaw, who presented preliminary results from Grant Thornton’s 18th annual survey of government contractors at a recent industry event. He is the national aerospace and defense practice lead at Grant Thornton and a retired Navy vice admiral.

Falling revenues were accompanied by modest earned incomes: 56% of the government contractors surveyed reported profits of 5% or less for the year, while 3% reported losses.

The patterns show that uncertainty and cost-cutting have taken a toll, Crenshaw said.

“This is the first time we’ve seen this,” Crenshaw said. “It is the result of budget uncertainty, the fiscal cliff and, to some extent, insourcing.”

The survey comes on the heels of the Office of Federal Procurement Policy’s recent announcement that overall contract spending across the government dropped by $20 billion in 2012.

Federal agencies spent $513 billion on procurements of goods and services last year, down from $537 billion in 2011, a 4.5% decrease, OFPP said.

The survey shows a marked downturn from a year ago. In 2011, only 31% of the federal vendors’ reported profits in the 1% to 5% range. Also that year, 50% of the respondents saw increases in federal contract sales, while 29% saw decreases.

Faced with a harsh fiscal environment, some federal vendors are diversifying into commercial markets, Crenshaw said: “Government contracts are being seen as higher risk.”

Several trends have contributing to increasing risks, including the Defense Department’s move to fixed-price contracts, which has shifted more risks onto contractors. Tighter federal oversight also is adding risk.

“The Defense Contract Audit Agency is just as likely to shut you down for a $10,000 violation as for a $10 million violation,” Crenshaw asserted.

Crenshaw spoke at a luncheon sponsored by AFFIRM in Washington. The final survey results will be released in early 2013.

Vice Adm. Mark Skinner, principal military deputy to the assistant secretary of the Navy for research, development and acquisition, acknowledged that vendors are experiencing more risk.

“We do have a tendency to share risk with the community, which can put pressure on profits,” Skinner said. But, he added, those risks can be priced into a contract.

“A lot of things are happening that create a ‘perfect storm’ for contractors,” added Mary Davie, acting commissioner for the General Services Administration’s Federal Acquisition Service. Agencies have acute budget pressures, needing to get more done with fewer resources.