Your taxpayer dollars at work ... building red tape
Filed under: Tax
As if the government doesn't get a bad enough rap -- admittedly, frequently deserved -- now there's this. The Federal Times just reported on a new survey that just came out on Tuesday, which suggests that contractors don't profit from government work as much as is commonly thought. The survey was conducted by Grant Thornton, who isn't some suave movie actor or a relative to Cary Grant. Just in case you thought so. Obviously, I didn't. I knew from the start that it was a huge accounting/consulting firm. Really.
So, anyway, 69% of government contractors last year made profits of less than 10 percent from their government business, and seven percent of those contractors actually made no profits. Only 12 percent of the more than 100 government contractors queried brought in more than 15 percent from their government contracts in fiscal 2006.
And some of the reasons companies aren't making profits? Surprisingly, there's an awful lot of red tape involved when working with the government. I, for one, as Captain Renault in Casablanca famously said, "Shocked, shocked to find that gambling is going on here." OK, the quote doesn't match up completely to this example.
Or maybe it does. After all, it turns out it's kind of a gamble when you work for the government. As the Federal Times explains, the contractors are often asked to use cost-reimbursable contracts, which require more audits, reporting and investigations than commercially styled fixed-price contracts. (Of course, to be fair, when contractors rip off the government, we naturally and rightfully complain, and that leads to contracts like this.)
But then there's the simple fact that when a new governor, mayor, president or what have you is elected, or simply the ever-evolving budgetary agenda changes, programs can be eliminated, suddenly making the work that you or your business was doing for the government -- well -- obsolete. That has to be devastating, though, I guess on the bright side, as a taxpayer, you might be happy to be saving the money.
(I'm not going to get audited for writing this, am I?)
Geoff Williams is a business journalist, primarily for Entrepreneur magazine, and is the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale, 2007).
So, anyway, 69% of government contractors last year made profits of less than 10 percent from their government business, and seven percent of those contractors actually made no profits. Only 12 percent of the more than 100 government contractors queried brought in more than 15 percent from their government contracts in fiscal 2006.
And some of the reasons companies aren't making profits? Surprisingly, there's an awful lot of red tape involved when working with the government. I, for one, as Captain Renault in Casablanca famously said, "Shocked, shocked to find that gambling is going on here." OK, the quote doesn't match up completely to this example.
Or maybe it does. After all, it turns out it's kind of a gamble when you work for the government. As the Federal Times explains, the contractors are often asked to use cost-reimbursable contracts, which require more audits, reporting and investigations than commercially styled fixed-price contracts. (Of course, to be fair, when contractors rip off the government, we naturally and rightfully complain, and that leads to contracts like this.)
But then there's the simple fact that when a new governor, mayor, president or what have you is elected, or simply the ever-evolving budgetary agenda changes, programs can be eliminated, suddenly making the work that you or your business was doing for the government -- well -- obsolete. That has to be devastating, though, I guess on the bright side, as a taxpayer, you might be happy to be saving the money.
(I'm not going to get audited for writing this, am I?)
Geoff Williams is a business journalist, primarily for Entrepreneur magazine, and is the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale, 2007).
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Reader Comments (Page 1 of 1)
2-21-2008 @ 12:17PM
Erwos said...
Is that "contractors" or "contracts"?
Here's my point: there are not all that many "big" government contractors. There are oodles of small ones. The big ones make lots of profit, and the small ones make very little.
In a government contract, the party that actually signs it is called the prime. But, the contract generally specifies that X amount of the contract work must go to small businesses - subprime contractor. Subprimes traditionally get screwed on margins, and primes basically treat them as free profit.
So, if there are a lot of subprimes that got included in the survey, I'm not at all surprised that contracting wasn't profitable for them. The primes are making money hand over fist, but there just aren't as many of them.
In other words, the survey answers a different question than the one the post author is trying to answer (the author's question being "does the government get taken for a ride by contractors?").
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