Comment: Sorry to bump a week old thread

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Sorry to bump a week old thread

But I just wanted to point out that in the USA at least, defense contractor profits (i.e. fee) are controlled by the gov't contracting agencies. At least on the Science & Technology programs like we work on.

For instance on the program I work we get 9% fee. Sometimes (i.e. rarely) we may be able to convince the gov't customer to allow us to get as much as 12% fee. On NASA contracts it's usually less than 9%... more like 6-8%.

However, our parent company does mostly commercial work (sells aircraft parts to Boeing, etc.) and they can command a 20% profit margin even on those commercial Firm Fixed Price contracts.

I am quite sure that many other commercial companies in other industries pull in 20% profit. The 3-5% average profit that people, myself included, remember from our schooling include the large number of failed businesses (which of course aren't profitable at all or aren't profitable enough to remain in business long).

So, the real key behind gov't defense contracting isn't the % profit, but the fact that the contractors get that percent based on every labor hour (which includes direct labor cost, overhead costs, general & administrative costs, and sometimes material handling costs too) billed to the gov't. When you consider that most contracts are Cost + Fee then you'll understand why the industry grows and grows. The industry pushes for more defense spending, bigger contracts, higher total funding ceilings, etc. so they get more total $ in profit (even though the % compared to commercial industry can be relatively small) because there aren't enough incentives for contractors to control costs and stick to schedules.

Essentially, defense contractors are selling man hours of labor (which are dominated by highly skilled, well-paid labor such as engineers, scientists, analysts, technicians, etc.).

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