17th Annual Government Contractor Survey

The accounting firm of Grant Thornton just published the results of its 17th annual government contractor industry survey. This survey is intended "...to measure the impact of new requirements in Government contracting regulations, as well as the effects of changing priorities in the enforcement of procurement regulations by Government personnel involved in the procurement process". The survey included small, medium, and large Government contractors in 24 states and the District of Columbia. Here are some of the highlights from the executive summary section.

• 50% of the companies experienced increased revenues from Government sources. In last year's survey, that number was 55%.
• 72% of the survey participants account for uncompensated overtime by computing a diluted hourly rate (compression method) to allocate labor costs to cost objectives.
• On average, survey participants reported a 30% win rate on proposals submitted in a competitive environment for new work (consistent with prior surveys).
• Only 37% of the survey companies with EVMS (Earned Value Management Systems) reporting requirements believe that EVMS is a cost-efficient management tool (the same as last year)
• Relationship between contractors and government auditors and contracting officers has deteriorated during the past year. The relationship with auditors was rated as fair or poor by 19% of the surveyed companies, compared to 11% in the prior survey. The relationship with contracting officers was rated fair or poor by 10% compared to 5% in the prior survey.
• Only 22% believe that contract issues are resolved efficiently. This represents a decline from 26% in the prior year.

Concerning the deteriorating relationships with auditors and contracting officers, the survey makes the following familiar refrain:

"...It is our view that the decline in efficiency and business relationships during the past few years can be traced directly to changes in DCAA policy adopted after the GAO reports were issued in July 2008 and September 2009. Unfortunately, the GAO criticized the DCAA for having a management and agency culture that focused on a production-oriented mission, emphasizing the need for timeliness in supporting the needs of contracting officers in the procurement process. Rather than praise the DCAA for its production-oriented culture, the GAO unfortunately chose to severely criticize the DCAA for a perceived lack of independence from contractors and insufficient documentation and audit testing in the work-paper files to support the audit opinion. The DCAA took these criticisms to heart, and has adopted policies that increase its independence, expand its audit testing, increase the standards required for accepting costs or business systems, and significantly delay the issuance of audit reports. Further, in our view, the quality of the audit reports being issued by the DCAA under the new policies is far lower than was the case prior to the GAO reports. It appears that the net result from the GAO reports is that the DCAA's production-oriented culture has been replaced by a system in which the DCAA takes far longer to issue lower quality reports to a contracting officer who must seek DCAA concurrence before conceding some of the DCAA's positions in negotiations with the contractor. A possible remedy for the current inefficiencies that plague government contracting would be a statement of the basic principle that an audit report must be completed in a timely fashion if it's going to be useful as part of an efficient and cost-effective procurement process.

If you would like to read the complete survey results, click here.