Survey finds fewer contractors grew in 2011

March 11, 2012

Contractors remain optimistic despite prospects for a slowdown in government spending, according to a new survey due out later this month.

Deltek’s Clarity survey — set for release Tuesday — asked senior executives from more than 400 firms ranging from small start-ups to multinational aerospace giants about their 2011 performance and their 2012 expectations. Respondents were not required to answer all questions.

The respondents said their companies grew an average of 7.3 percent last year — less than half of the 14.7 percent rate the same survey showed a year before. Twice as many firms reported getting smaller and, for the first time in the survey’s three-year history, not one mid-size firm (defined as those with annual revenue between $29 million and $99.9 million) reported a growth rate of more than 50 percent.

Yet when asked to project their 2012 growth rate, the group gave an average answer of 19.6 percent.

With government discretionary spending declining after more than a decade of growth, companies will have to find new ways to boost sales. Roughly 10 percent more firms reported a reliance on subcontracting revenue last year than in 2010.

That may be due, in part, to the government’s increasing reliance on large, multi-winner contracts. Multiple-Award Task Order Contracts, more commonly dubbed MATOCs, allow an agency to award a contract to several companies, then ask those companies to compete for individual orders to perform specific tasks.

The MATOCs trend appears to be benefiting large companies the most, as win rates on these contracts doubled, to roughly 50 percent, among large contractors in 2011.

The trend may also trigger more acquisitions; large firms reporting “definite plans” for mergers and acquisitions in 2012 increased to 50 percent this year, up from 40 percent in 2010.

The industry is learning to live within its means. Firms of all sizes reported an increase in the number of projects completed on or under budget in 2011.

Companies reported that their average monthly invoice cycle — the time between the day the project billing cycle ends and the time an invoice is sent to the government — crept up to 12.2 days, from 10.1 in 2010. Yet the government appears to be paying its bills faster, as the period between issuing an invoice and receiving payment dropped to 42.8 days in 2011 – 10 days faster than in 2010.

The government appears to be watching contractors more closely. More than 60 percent of respondents claimed that government oversight had increased in 2011 — a jump from 42 percent the previous year. There was no change in the top audit issues, however, as labor and timekeeping and indirect costs have been the most popular targets for three years.

The increased oversight appears to be affecting how companies are managed, as a record four in 10 reported that they employ a company-wide risk management strategy.

There is near unanimity in the industry about the challenges ahead. Asked to identify the biggest challenge to growth in 2012, respondents cited a “more restrictive spending environment,” “increased competition” and “limited business development resources” more than any other factors.

Warren Linscott is vice president at Herndon-based Deltek, which analyzes the government contracting market and can be found at www.deltek.com.

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Number of mid-size firms that reported a growth rate of more than 50 percent in 2011, the first year no company reported a higher expansion.

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