Survey shows growing distrust between industry and federal auditors

Nearly three out of four federal contractors believe the government is too slow and inefficient in resolving contract disputes, with most pinning blame on the Defense Contract Audit Agency, according to an industry survey released on Monday.

For the 16th consecutive year, Grant Thornton LLP, a business advisory firm, surveyed more than 100 government contractors for their views on a host of business, policy and regulatory issues affecting the federal marketplace. The results showed a widening distrust between industry firms and government officials, particularly federal auditors.

For example, 56 percent of survey participants blamed DCAA for not addressing procurement disputes promptly and efficiently while only 18 percent faulted the contracting officer. The remaining 26 percent believed the government resolved acquisition disputes efficiently.

The most frequent source of dispute -- as has been the case for the past three years -- appears to be the executive compensation charged by contractors. Survey officials claimed the analytical techniques DCAA used to assure reasonable compensation were flawed.

"These findings were not unexpected, given the changes in DCAA policy adopted in the aftermath of Government Accountability Office reports issued in July 2008 and September 2009 that severely criticized the quality of the DCAA's work," said Kerry Hall, Grant Thornton's government contractor practice leader. "The GAO reports and the DCAA changes that followed likely contributed to the survey findings, namely that the process of resolving contract issues is increasingly inefficient."

Roughly 14 percent of industry officials surveyed said their relationship with government auditors, and DCAA specifically, had worsened in the past year, while 12 percent reported an improvement and the remainder said there was no change. Only 2 percent reported a decline in the quality of the business relationship with their contracting officer.

The survey also provided a glimpse into how the state of the overall economy might be influencing the profits of government contractors. It showed that in the past year, 50 percent of contractors did not make a profit, underwent reductions or experienced profits of between 1 percent and 5 percent. Only 6 percent of respondents said their profits went up by 15 percent or more while 10 percent experienced a loss or had flat profits.

The 2009 Recovery Act, meanwhile, might have run its course in spurring contractor growth. Seventy-two percent of respondents anticipate no significant growth from the stimulus program in the next 18 months; the remaining 28 percent expect only modest growth.

"While government contracting is usually a growth business, it appears that the business risks are growing more quickly than revenue, and deteriorating profits are one result," the survey summary suggested.

Despite the modest profits, government-related business appeared to be somewhat immune from the larger economic headwinds. About 55 percent of contractors reported that their revenue from federal business had increased during the past year, while only 22 reported reduced revenue from government procurements.

The federal insourcing initiative also might be taking its toll on the workforce of government contractors. Nearly half of all private sector firms interviewed said the government had successfully recruited some of their employees into federal service to perform functions the agencies had insourced.

The survey also showed that:

• A total of 22 bid protests were filed during the past year by companies surveyed, half of them sustained by the Government Accountability Office, or the U.S. Court of Federal Claims. The 50 percent sustainment rate is well above historical averages
• In spite of the government's stated preference for using fixed-price contracts, they accounted for only 20 percent of revenue from surveyed companies. The remaining 80 percent was distributed equally between cost-reimbursable and time-and-materials contracts
• On average, survey respondents reported a 36 percent success rate on proposals submitted in a competitive environment for new work. Comparatively, the win rate was 35 percent when special business units, such as joint ventures, competed for new work.