Comparison of Profit Margin Percentages Between Prime Contractors and Subcontractors for Aircraft, Missiles, and Unmanned Aerial Vehicles

Aaron M. Rhea


In order to achieve its mission of providing the military forces needed to deter war and to protect the security of our country; the Department of Defense (DoD) routinely acquires new weapons systems. The DoD acquires these systems by contracting the design, development, and manufacture to defense contractors. Many of today's systems are highly complex systems of systems comprised of many specialized components. For systems such as these, the primary defense contractor tends to subcontract out parts of the effort to other defense contractors for these specialized subcomponents. The purpose of this study was to determine if there is a profit advantage in either having a prime contractor or subcontractor role within DoD systems acquisition. The researchers used contractor cost data for programs from the aircraft, missiles, and UAV commodities to see if one contractor group has an advantage over the other group. The researchers analyzed this data by phase (development/production), contract type (cost reimbursable, fixed, and a mixture of the two), commodity, and service (Air Force, Army, and Navy). The researchers found neither contractor group to have a consistent advantage over the other.