U.S. government federal contract spending totaled $436.9 billion in 2015, with an estimated 64% of the spending going to national defense contracts. The U.S. defense budget is by far the largest in the world, and the government relies heavily on the private sector to meet its needs. Likewise, many contractors rely on the government for a substantial share of their revenue.
To determine the companies profiting the most from the U.S. government, 24/7 Wall St. analyzed contract data from the Federal Procurement Data System. Companies were ranked on total payments received from U.S. government contract obligations in the 2015 government fiscal year.
Former President Barack Obama signed the Budget Control Act into law in 2011, effectively reducing the defense budget by roughly $1 trillion over the 10-year period through 2021. Since 2011, annual defense spending has declined by 12.5%, likely also as a result of the reduced involvement in the Middle East. The budget cuts reduced the resources available for military contracts. Between the 2014 and 2015 fiscal years, annual contract spending fell by roughly $7.4 billion.
Each of the five contractors receiving the most money from the federal government in fiscal 2015 — Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman — were also in the top five each year since fiscal 2009. Also known as the big five, these companies have a longstanding relationship with the federal government and are unlikely to lose their status as top contractors in the near future.
In an interview with 24/7 Wall St., Rob Levinson, senior defense analyst at Bloomberg Government, explained, “These companies have been doing business with the federal government for so long, they know very well how to navigate that whole process, which winds up being a comparative advantage.” The top five contractors received more than 20% of annual U.S. government contract payments in 2015.
The U.S. military requires extremely expensive equipment, including nuclear submarines, aircraft carriers, and fighter jets. “There just aren’t that many companies that can do that,” and partially as a result, “[large contractors] have pretty consolidated positions,” Levinson said. Huntington Ingalls Industries, for example, is the only company capable of building the Navy’s nuclear-powered aircraft carriers, and one of two that builds the current fleet of DDG-51 Arleigh Burke-class destroyers.
Major federal contractors are certainly not immune to shifting market and industry environments. For instance, in the wake of recent budget cuts, the government has lowered its quality standards for many IT products, favoring the least expensive bid proposals over more expensive, higher quality options. From the perspective of the U.S. government, these businesses have more flexible quality standards and are more easily replaced by smaller companies, in stark contrast to weapons and infrastructure operations.
As a consequence, many contractors are shifting focus from their lower margin business segments. SAIC, for example, recently spun off its IT services segment into a separate company called Leidos. Lockheed Martin also spun off its IT business into a separate entity and merged it with the newly-formed Leidos.
The federal contracting industry is complex, and current trends are not necessarily bound to continue. Throughout his campaign, President Donald Trump promised to boost the defense budget and build up the military. Taking into consideration Trump’s outspoken disapproval of current U.S. trade policy as well, the new administration may invoke substantial change in the contracting industry.
To identify the companies gaining the most from the federal government, 24/7 Wall St. analyzed data compiled by the General Services Administration and accessed through the Federal Procurement Data System. Companies were ranked on total payments received from U.S. government contract obligations in the 2015 government fiscal year. Data on individual contracts also came from the Federal Procurement System.
These are the 15 companies profiting the most from the federal government.
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