Government Contractors

Brief Excerpt from Industry Overview Chapter:

Companies in this industry produce goods or services under contract for the US federal government. Major federal contractors include Boeing, General Dynamics, Lockheed Martin, Raytheon, and United Technologies Corporation.

The US government spent about $460 billion in fiscal year ended September 2012 on contracts to buy goods and services, including more than $310 billion for defense-related items, from about 150,000 companies. US government spending on contractors is expected to decline or be flat over the next two years. Key growth drivers include government revenues and regulations.

State and local governments also spend money on contracts, especially those related to major capital projects such as highways, bridges, and public buildings. Spending varies widely by state and by local government entity.

COMPETITIVE LANDSCAPE

Demand is driven by the expanding needs of governments and the trend toward outsourcing. The profitability of individual contracts depends on efficiency, because most contracts have a fixed price. Large companies have advantages in getting large contracts and may have greater expertise in the contracting process, but small companies can compete successfully for most contracts by offering the lowest price. Although some government contracts can be handled only by large companies, small companies can be very competitive by supplying specialized products or services, or by working as subcontractors. Some programs set funds aside specifically for small businesses. The industry is concentrated: the 100 largest federal contractors account for more than 60 percent of contract spending....