Author: Gloria Larkin
The old rule of thumb in government contracting was that prime contractors were always large businesses, subcontractors were always small businesses and a team was only appropriate in baseball or football.
As recently as five years ago, one was safe operating under that assumption. But business has changed dramatically and, today, successful businesses are prepared to wear multiple hats in the new federal contracting market. Now, a small business may be a subcontractor on contract No. 1, a prime contractor on contract No. 2 and a team member on contract No. 3, all of which are running simultaneously.
What may be even more confounding is that, on the flip side, the typical large business may serve as a prime contractor on contract A, but also could serve happily as a subcontractor on contract B and a team member on contract C.
There are multiple motivators behind this drastic change.
Doing More With Less
Federal spending has grown from about $220 billion in 2000 to more than $550 billion last year. During that time, the acquisition workforce has shrunk from more than 100,000 people to fewer than 40,000. Even with budget cuts and sequestrations, the end result is that individual contract size has grown because there are fewer people to administer the contracts.
$1B Small Business Contracts
Instead of $5 million, $20 million or even $100 million individual contracts, the federal government is competing multi-billion-dollar contracts, and some of those gigantic contracts are set aside for small businesses to be the prime contractor. One recent award was through the Department of Homeland Security, where 29 small businesses were prime contractor awardees for a six-year, $6 billion-dollar-plus contract.
Another example is the Department of Health and Human Services CIO-SP3 SB contract, a 10-year, $20 billion ceiling, multiple-award contract awarded to more than 90 small businesses.
This scenario is in place because the federal government has a mandate to spend 23% of its contracting dollars with small businesses nationwide. Yes, large businesses still win more than 77% of the business, but 23% of $500 billion is more than $115 billion per year, and that’s a huge market in anyone’s book.
In most instances, when a small business wins as the prime contractor, it is required to self-perform 51% or more of the contract. However, it may be allowed to subcontract 49% to any business, large or small. This is why large businesses may be content to be a subcontractor, as garnering 49% of something is much better than getting 100% of nothing.
Teaming
Teams are relatively new to the federal marketplace. When pursuing the mega-contracts noted above, no one small business can self-perform the entire contract. If it could, it would not be small. Therefore, teams of companies are often formed to compete for and win contracts.
Often, these team members have privity with the government agency and are paid directly for the work performed or products provided. Successful companies will plan for a three-pronged strategy in this ever-evolving market; switching between the prime, subcontractor or team member hat then depends on the needs of the upcoming contract.
Check with the winning contractors noted below for subcontracting and teaming opportunities on these, among other, upcoming contracts.
