This year (2022), federal contractors have dominated the Fastest Growing Companies List, despite there being fewer contractors listed than tech companies. In total, 13 federal contractors were listed, compared to 14 tech companies, but they had a higher combined revenue and higher average revenue growth.
Reasons for Contracting Success
Three trends have made contracting particularly lucrative in recent years: There is more funding available for awards, more work for contractors to do, and fewer prime contractors to divide the work between.
Decrease in Number of Federal Contractors
The number of Federal contractors listed this year is also lower than in 2017, when 18 of the top 50 companies were in the contracting field, but with slower average growth rates. The contracting industry has seen a lot of mergers and consolidation in recent years, which has contributed to the decrease in number of federal contractors. Compliance work to meet government requirements has also increased, leading to the hiring of more staff dedicated to this purpose and hindering new companies from entering the field.
Set-Aside Programs and Small Businesses
Smaller Government contractors often see the fastest growth, but government set-aside programs, such as the 8(a) program for small, disadvantaged businesses, have limits on how much revenue a company can make. As these companies grow, they can outgrow the set-aside programs and slow their growth rate. PSC studied 1,000 8(a) graduates and found that only 40% were still working in government contracting six or seven years later, with only 15 to 20 companies earning between $60 million and $100 million in contracting revenue.
Future of Government Contracting
Despite the challenges faced by top Federal Contractors, the future looks bright for those in the industry. Total federal contract spending remains at its highest level, with a 5% decrease this year to $649.7 billion, only topped by the all-time peak of $687 billion in 2020 tied to the Covid-19 stimulus package. Government contracting can be a lucrative and stable source of revenue for businesses, but it is important for companies to be aware of and follow all relevant regulations and navigate the complex procurement process in order to secure and maintain contracts.