Uncle Sam Wants You – To Contract with the Government

The federal government is looking for mid-sized vendors, and the upside potential is enormous.

Put together, federal agencies comprise the country’s largest customer, spending roughly $400 billion annually on everything from consulting services and office supplies to road construction and weapons manufacturing.

For companies that can deliver on a few successful initial projects, the government can become a steady and lucrative customer.

But landing those first projects can be tough, says Chad Davis, partner at Red Rock Business Advisors, a Sterling, Virginia, consultancy serving commercial and government clients. “Government agencies use past experience as a major factor in awarding contracts. They want to work with companies who’ve worked with the government before,” Davis says.

Teaming Up
Even if companies have done comparable commercial work, lack of a track record with the feds is a major hurdle to securing government work. But there are ways to get around it. One of the most effective is “teaming,” says Art Lee, a business unit director at Dynamic Research Corporation (DRC), a $250 million government management consulting firm with headquarters in Andover, Maryland, and Washington, D.C. “Teaming” describes a partnership or joint venture formed by two or more companies that act as a prime contractor for a government project, or when a prime contractor works with subcontractors on a specific contract or acquisition. “Teaming can get you work on projects you’d never win on your own,” Lee says. As a mid-sized firm, DRC sometimes acts as the primary contractor and sometimes as the subcontractor on a team.

Most government agencies are obligated to award a percentage of all contracts to companies certified by the Small Business Administration (SBA) as “8(a),” meaning they’re owned by women, minorities, veterans or the economically disadvantaged.

Qualifying for Small Business Status
Many mid-sized companies don’t realize that they could qualify for that certification, which means they’re missing out on roughly $33 billion in contracts the government awards each year to such businesses, says Lourdes Martin Rosa, owner of Government Business Solutions, a Miami-based consulting firm and American Express advisor on government contracts.

The SBA’s definition of small business depends on the industry in which a company operates. For example, law firms with annual billings of less than $7 million are considered small businesses, but building contractors and civil engineers can bill up to $33.5 million a year and still qualify. A manufacturing company is considered small as long as it does not exceed 500 employees. “It’s worth taking the time to get certified if you fit the criteria,” Rosa says.

For many projects, larger contractors must partner with 8(a) companies to bid, she says. “That makes a reliable 8(a) a very attractive commodity.”

Picking up Expertise
Mid-sized and larger companies also can cut costs by adding niche-market contractors to their teams rather then ramping up that expertise in-house, Lee says. “Smaller contractors have lower overhead, so they can deliver the service at a lower price.”

Working with smaller contractors has allowed DRC to offer lower bids, which can help them beat out the competition. “We spend a lot of time developing relationships with small businesses, so when we identify an area where we have a weakness, we have a teaming partner to fill that gap,” Lee says.

Mid-sized companies, meanwhile, can use partnerships to build experience, learn how to land and deliver government contracts and network with government agencies that could give them future work. “It’s a great opportunity to get your foot in the door,” says Davis, the Red Rock Business consultant.

Red Rock Business works as a subcontractor on every government contract it supports, partnering with a handful of larger contractors that include it in their proposals. “They use us because they know we will do what we say we will do,” Davis says.

Demonstrating reliability is vital to maintaining long-term government business, whether the company is the prime contractor or the sub, he says. “If you can convince someone to give you that work, you’d better do it well or you won’t get a second chance.”

Red Rock occasionally bids on projects as a prime contractor, and though the company has yet to win a bid, the process has been beneficial, Davis says. Along with the experience of writing a proposal, bidding as a prime creates name recognition and helps Red Rock build a relationship with the government agency and impress competitors. “If we write a good proposal and come in number two, our competitors may see us as a teaming partner for future projects,” he says.

Too Big To Be 8(a)
Many companies use their 8(a) status to land a steady stream of projects. But, too much success can put a smaller company at a disadvantage, DRC’s Lee says.

Lee originally worked for Kadix Systems, a woman-owned, management consulting firm that was 8(a) certified. When DRC acquired Kadix in 2004, it losts its small-business advantage.

The transition was a shock to the business unit, Lee says. Because Kadix delivered a premium service while fulfilling government agencies’ requirement to use a woman-owned business, the firm had no trouble landing government projects. “But when we made the jump all those contracts disappeared,” Lee says.

In similar situations, some companies go to great lengths to maintain their small-business certification, Lee says, including breaking into multiple, smaller firms upon reaching the $100 million limit of government contracts they can fulfill as an 8(a) company. Others shut down when they reach the limit, restart as a new entity and reapply for 8(a) status with the same people.

A more ethical approach, Lee says, would be to continue bidding on contracts as a larger company, trusting that the experience and network a company picked up as a certified 8 (a) small business would make up for losing its protected status. “It may take a little adjustment, but if you do a good job as an 8(a), you can turn that experience into more business down the road,” he says.

Whether or not a company acts as a prime contractor or a sub, or qualifies as an 8(a) business, if it’s going after government contracts, it must deliver what it promises. “Some companies get so excited about that first contract they say ‘yes’ to everything,” Lee says. But that can cost them time money, and their reputation. “The biggest mistakes you can make on a government project are over-committing, underbidding or not being able to do what you said you could.”

Doing that once could end a company’s days as a government contractor.