By: Sandy Scearce, Grant Thornton

The ongoing economic downturn has kept unemployment high and wallets closed, resulting in significantly reduced consumer spending and a downward spiral for many industries from retail to housing. Coupled with a difficult loan, M&A and private equity market, and enterprises are left with no option than to trim expenses and try to tread water.

This wasn’t necessarily true for all markets, however. In fact, the government contracting industry was a very large and notable exception to this ongoing negative financial trend.

According to a recent survey by Grant Thornton LLP, 80% of government contractors surveyed saw no decrease or an increase in their revenue in 2009.

The Grant Thornton 15th Annual Government Contractor Survey was administered to small, medium, and large companies that represent a cross-section of the government contractor industry. These companies represent 22 states and, on average, 91% of their revenue was generated from contracts with the Defense Department or other federal agencies. Approximately 97% of the surveyed companies sell professional services, while only 3% sell products.

The survey results showed:

  • In 2009, 50% of the survey participants experienced revenue increases from federal business.
  • Only 20% suffered decreases. Moving forward, 69% of the companies anticipate increases in revenue from federal government prime contracts compared to 67% in last year’s survey.
  • Further, 61% of surveyed companies expect growth in subcontracts for federal work.

The fact that 80% of participating companies did not experience a decrease in government contracting revenue in 2009 is a surprising number for many reasons. First is the obvious situation with the down economy creating budget crunches across the board for both federal and state governments. Second is the dialing down of American and military involvement in Iraq, which was expected to significantly reduce defense spending. Although defense spending did decrease, it did not have the impact it was expected to.

A second surprising finding had to do with another trend that was expected to have a significant impact on government spending and contractor revenues, but didn’t. The American Recovery and Reinvestment Act of 2009, which spent hundreds of billions of American dollars on infrastructure and other improvements, had a surprisingly small effect on contractor revenues. Only 4% of the surveyed companies anticipate significant revenue increases from the stimulus package, while 33% anticipate modest revenue increases. Although positive, these results are not the rapid growth many may have expected.

Despite ongoing economic hardships, the state of government contracting remains strong. If you are interested in reading more about the survey and its results, you can find a summary available here.

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