Majority of government contractors report profit rates of 10% or below

McLean, VA, Feb. 19, 2008 – Profits in the government contracting industry continue to be modest, according to the 13th Annual Grant Thornton Government Contractor Survey. More than three-fourths (76%) of surveyed companies reported a pre-tax profit of 10 percent or below.

“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.

The survey offers an in-depth look into the industry as a whole and into the day-to-day business of government contracting. Some of this year’s survey highlights include:

• Management and support headcount — Headcount of management and support activities was significantly reduced to 9.9% this year from 13.8% last year.
• Revenue trends — 52% of respondents experienced revenue increases during the past year, continuing the trend from previous years.
• Anticipated growth — 72% of respondents expect increases in revenue from federal prime contracts.
• Uncompensated overtime — 32% of survey companies do not account for all hours worked, and as a result, are at risk for losing revenue and profits on time and material contracts.
• Executive compensation — Executive compensation remains the most frequent cost challenged by government auditors.
• Identifying out-of-scope work — Identical to last year’s survey, 66% of survey participants reported that their procedures for identifying out-of scope work are either not effective or only modestly effective.
• Proposal win rates — 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.
• Intellectual property — 49% of surveyed companies own intellectual property. Of these, only 33% charge their customers license fees for use of the property.
• Exit strategy — Sale of the company continues to be the most favored exit strategy by far. The interest in pursuing initial public offerings of company stock grew even lower than in previous years.

New developments
The Federal Acquisition Regulatory (FAR) Council is in the process of creating new regulations in the areas of ethics and compliance, which add substantial new risks for government contractors.

“Ultimately, government contracts will bear the cost of these new or expanded requirements,” said Hall.

For more information regarding the 13th Annual Government Contractor survey, please contact Melissa Ford at 703.847.7553 or Melissa.Ford@gt.com. A summary of the survey is available for download at www.GrantThornton.com/govcon.

About the survey
Grant Thornton LLP’s 13th Annual Government Contractor Industry Survey reflects findings from over 100 companies. Survey questionnaires were distributed in early 2007 and responses were received by July 2007. Financial and business statistics presented in the survey typically represent information related to fiscal years ending in 2006.

About Grant Thornton LLP
Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global accounting, tax and business advisory organizations. Through member firms in more than 110 countries, including 51 offices in the United States, the partners and employees of Grant Thornton member firms provide personalized attention and the highest quality service to public and private clients around the globe. Visit Grant Thornton LLP at www.GrantThornton.com.

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