An Analysis of Defense Contractor Profit Margins
Abstract
Profit earned by defense contractors is a controversial issue among government officials and the defense industry. It is recognized that profits earned by defense contractors are not strictly the product of the dynamics of a competitive market but of federal profit statutes, contractual incentive schemes, the quality of government oversight, and in a market of less than full competition. As such, there is always concern of whether contractors are earning "excessive" profit - through policy or failed oversight. The purpose of this research is to investigate the question of reasonable profits from one particular angle - whether profit margins differ among two different categories of contractors, primes and sub-contractors. The study finds that sub-contractors, in the aggregate do not earn higher median profits than primes. However, it finds that expertise does appear to be a significant characteristic at a finer level of analysis. Expertise correlates with higher median profits. And, sub-contractors who exhibit this expertise earn higher median profits than both their primes and other sub-contractors.
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 26, 2019
- Accession Number
- AD1077682
Entities
People
- Sara K. O'connor
Organizations
- Air Force Institute of Technology