Sequestration, shutdown take a bite out of contractor revenue

WHAT: A study titled “Sequestration and Government Shutdown Negatively Impacting Majority of Government Contractors” by MarketConnections Inc. and Lohfeld Consulting Group, released Dec. 17.

WHY: Federal contractors took major financial hits from sequestration and the 16-day partial government shutdown in October. According to the study, nearly 31 percent of contractors reported revenue declines of more than 10 percent in 2013, with another 30 percent reporting declines of less than 10 percent. Sixteen percent of contractors surveyed – a mix of 220 large, medium and small businesses – flat-lined revenue, while 15 percent managed moderate to significant growth.

Small businesses – generally less established than large contractors – took it on the chin in 2013, and were more likely to experience significant revenue decline.

Contractors’ reactions to sequestration and the shutdown varied. One-third chose to essentially ride the storm out, but 45 percent expanded into adjacent markets such as state and local government, while 35 percent modified their lines of business entirely. Forty percent of contractors surveyed also indicated a strategic effort to focus heavily on the front-end of project lifecycles to increase revenue in 2014. That means IT projects bid in 2014 could experience higher up-front costs than what otherwise might be expected.

In the study, 39 percent of contractors said they would add business development and capture personnel to their staffs, and 19 percent reported they would increase their use of consulting services. Another 12 percent planned to add more technical personnel to acquisition teams.

“Contractors who don’t act, I think that is a mistake,” said Monica Parham, director of marketing for Market Connections Inc. “In a highly competitive market, a highly changing market, hunkering down and taking a wait-and-see approach is a mistake. Companies that are proactive, innovative and applying that to business decision-making are going to emerge ahead of the pack. Companies doing nothing are going to get left behind.”

VERBATIM: “In response to government market pressures, contractors are re-architecting by expanding into adjacent markets (45 percent), modifying lines of business (35 percent), and putting greater emphasis on the front-end of the lifecycle to improve capture strategies and increase revenue in 2014. Forty percent of respondents also said they are expanding into new federal agencies.”