Government Contracting Experience
Value hinges on questions that a generalist advisor can easily overlook: How much of backlog is funded versus unfunded? Does revenue sit on durable contract vehicles (GSA Schedules, GWACs, agency IDIQs) that control future access, or on work that must be re-won? Is the contract mix cost-plus, time-and-materials, or firm-fixed-price, and what does that imply for the margins a company actually controls? How concentrated is revenue by agency and by contract, and when do the largest contracts come up for recompete? Does the company hold set-aside status, and how durable is it? Can it retain the cleared personnel who are, in many cases, the asset a buyer is really acquiring?
Getting these questions right is the difference between an opinion that withstands scrutiny and one that does not — and, in a transaction, between a price that reflects the business and one that leaves value on the table.
How we serve the government contracting community
Government contractors turn to Applied Economics across the full life cycle of ownership. Our practice areas work together, so the same team that understands how a contract waterfall drives value can carry that understanding into a transaction or an ownership transition.
Valuation & Consulting. Independent, defensible valuation opinions for financial reporting, tax, gift and estate planning, litigation, and transaction purposes. For contractors, that includes purchase price allocations that isolate backlog and customer-relationship intangibles, goodwill impairment testing, and valuations of equity and complex securities.
Investment Banking. Sell-side and buy-side M&A advisory, recapitalizations, capital raising, and fairness and solvency opinions. We help owners test the market quietly, identify the strategic and financial buyers who pay premiums for cleared work and differentiated capabilities, and negotiate terms that protect value through closing — all while they keep running the business.
ESOP Advisory. Feasibility analysis, transaction structuring, and the annual valuations an employee stock ownership plan requires. Employee ownership is a particularly strong fit for government contractors, for reasons we set out below.
The value drivers we analyze
Two contractors with identical revenue and margins can be worth very different multiples. The gap is explained by the factors below — the levers we examine on every government contracting engagement.
| Value driver | Why it moves value |
|---|---|
| Backlog — funded vs. unfunded | Funded backlog is near-certain revenue; unfunded backlog and priced options carry execution and appropriations risk. The split shapes the forecast and the discount rate applied to it. |
| Contract vehicles | Positions on GSA Schedules, GWACs, and agency IDIQs create access to future task orders. More than half of federal contract dollars now flow through IDIQ vehicles, so vehicle access is a core enterprise-value driver. |
| Contract type / mix | Firm-fixed-price work rewards efficiency but shifts performance risk to the contractor; cost-plus and time-and-materials shift risk to the government but cap upside. The mix dictates how much margin a company truly controls. |
| Customer & agency concentration | Heavy reliance on one agency or one contract is the concern buyers cite most often and is a leading source of discount pressure. Diversified, recurring customers support higher multiples. |
| Prime vs. subcontractor position | Prime status usually means direct customer relationships, greater control, and better insight into recompetes — and, for comparable work, often a stronger multiple than subcontract-heavy revenue. |
| Recompete exposure & contract duration | Contracts nearing expiration invite competition and revenue risk; a track record of winning recompetes and long remaining terms support stability and value. |
| Set-aside status | 8(a), SDVOSB, HUBZone, and WOSB designations open protected competition but expire or graduate. We risk-adjust for that timeline and for a company's ability to convert set-aside work to full-and-open awards. |
| Security clearances & cleared workforce | Facility clearances and the retention of cleared, credentialed personnel are frequently the asset a buyer is paying for. Workforce continuity through a transaction is a value driver in its own right. |
Why employee ownership fits government contractors
An employee stock ownership plan is one of the most effective ownership-transition tools available to a government contractor — and one Applied Economics is well positioned to structure and value. The advantages are unusually strong in this sector:
- Significant tax efficiency. An S corporation wholly owned by an ESOP owes little or no federal income tax, freeing cash flow to reinvest or to compete on price in a cost-sensitive market.
- Cost allowability. ESOP contributions are generally allowable costs, so a portion of the contribution can effectively be recovered through cost-reimbursable contracts — a benefit distinct to contractors.
- An edge in recruiting and retention. Equity ownership helps attract and retain the cleared engineers, IT specialists, and program managers that contractors compete fiercely to keep.
- A procurement edge. The 2022 National Defense Authorization Act created the first federal program to extend contracting advantages to ESOP-owned companies, adding a competitive reason to consider the structure.
- A tax-efficient exit that preserves the company. For owners who want liquidity without selling to a competitor or private equity, an ESOP offers a path that keeps the workforce, culture, and mission intact.
Because ESOP valuations must satisfy a trustee and withstand Department of Labor scrutiny, independence and defensibility are not optional — they are the standard we hold on every ESOP engagement.
Why Applied Economics
- Independence. We are an independent advisory firm, not a broker carrying a product to sell. For a government contractor that matters most where the scrutiny runs highest — our opinions are built to withstand ESOP trustees and the Department of Labor, the IRS, auditors, courts, and the party across the table in a deal, because they reflect the analysis rather than a predetermined number.
- Senior-level attention. We take on a select number of engagements at a time, so experienced professionals — not junior staff — do the thinking on your matter. The judgment a contract waterfall, a recompete-driven forecast, or a cleared-workforce retention risk calls for is counsel you would expect from a far larger bank, and you receive it at any engagement size.
- Credentialed professionals. Our team holds the designations this work demands — ASA, CPA/ABV/CFF, CVA, and CFA — the credentials a trustee, an auditor, or a reviewing agency looks for when a valuation has to hold up.
- Middle-market focus. We have spent our careers in the privately held, middle-market space where most government contractors live, and we know the owners, boards, and advisors who operate there.
- A track record since 1998. Across roughly 2,000 engagements for clients local, national, and worldwide, we have built a depth of judgment we bring to every government contracting valuation and transaction we take on.
How we can help
The full range of engagements we take on for government contractors, their boards, and their advisors:
- Mergers and acquisitions — sell-side and buy-side advisory
- ESOP feasibility, transactions, and annual valuations
- Fairness and solvency opinions
- Financial reporting — purchase price allocation and goodwill impairment
- Gift, estate, and succession planning
- Buy-sell agreements and shareholder transactions
- Litigation and dispute support
- Capital raising and recapitalizations
- Strategic options assessment
Whether you are planning an exit, preparing for a transaction, meeting a compliance requirement, or simply want to understand what your business is worth, we would welcome the conversation.