Expanding Your Customer Base as a Defense Contractor

NCI, Inc is a smallish IT company. It reported its Third Quarter Results today, the press release is available at MarketWatch.com. The company had a record quarter with very strong growth. In summary it saw increases across the board:
–Operating income up 23% to $7.8 million
–Operating margin increases to 7.7%
–Third quarter EPS up 30% to $0.32
–DSO of 76 reflects 12 day improvement
–Third quarter bookings of $202 million

Of interest, though, was that its customers are 80% DoD, 17% Federal Government and 3% other. Most defense contractors would love to get traction in the non-government market as they can make higher profits, especially in the service area, as they are not governed by pre-negotiated rates for labor and profit. Many of these types of contracts the Government contractor buys a mix of labor categories and hours to perform the service. Negotiation a contract with a private entity is much more free form and allows greater flexibility in the numbers. Unfortunately many defense contractors have a hard time getting into these markets as they don’t necessarily have the relationships required to identify the work and bid successfully. The flexibility required also makes it harder for them to price the work and get the right labor mix to do it. It is a conundrum for the companies, and some of the larger ones have set up whole separate groups to do this kind of work.