Government Contractors Industry Profile

The US government spent about $490 billion in its fiscal year ended September 2011 on contracts to buy goods and services, including about $330 billion for defense-related items, from about 260,000 companies. Major federal contractors include Boeing, General Dynamics, Lockheed Martin, Northrop Grumman, and Raytheon. The industry is concentrated: the 100 largest federal contractors account for more than 60 percent of contract spending.

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.

PRODUCTS, OPERATIONS & TECHNOLOGY

Government purchasing falls into two main categories: acquisition and procurement. Acquisition is when an agency figures out what it needs, then builds a strategy for purchasing. Procurement refers to the contracting portion of purchasing: an agency requests ...