Government Contractors

The US federal government each year spends about $560 billion to buy goods and services, including $260 billion for Medicare, $160 billion for defense, and $110 billion for nondefense items. Though it is difficult to determine exactly how much state and local governments spend on contractors, approximately $300 billion is spent annually by state and local governments on capital projects, such as highways, bridges, and public buildings, in which contractors are typically involved. Further, spending varies widely by state and municipality, with a large state like California spending up to $35 billion on contractors annually.

Government contractors include large corporations, like Lockheed Martin, Boeing, and Northrop Grumman; academic institutions, like the University of California and California Institute of Technology; healthcare companies, like AmerisourceBergen; and tens of thousands of smaller companies.

The government contracting industry is highly fragmented, but at the federal level is concentrated at the top: the 100 largest federal contractors receive about 60 percent of procurement dollars. Efforts to help smaller firms compete for federal contracts are under way.

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 ...