Government Contracting: How Are Small Businesses Doing?

By Karen Axelton

Small businesses who obtain government contracts know that the U.S. government is a desirable client. But how are small companies doing when it comes to landing federal contracts or subcontracts? American Express OPEN’s second annual government contracting survey of more than 700 active small government contractors found they are facing some challenges, partly because federal government contracting spending was down 14 percent in 2011 compared to 2010. Here’s what else the study found:

Small businesses are spending more trying to obtain federal contracts. In 2011, active small business contractors invested an average of $103,827 in both time and money in seeking federal contracting opportunities—up 21 percent from the previous year ($86,000).

Businesses owned by minorities invested more than the average—an average of $139,709, fully 56 percent more than small businesses owned by Caucasian men and women.

Women, overall, were spending less time and money pursuing federal contracts. The average investment by women-owned firms was 30 percent less than that made by men-owned firms.

Small businesses are bidding less often. Even as they spend more on their average bid, small firms are bidding far less. Both in prime contracting and subcontracting, bidding activity has declined by nearly half.

So what does it take to succeed in federal contracting? Here are three tips:

Be persistent. The small business contractors in the survey reported that they had to submit an average of 4.4 bids before earning their first prime federal contract. Once they did land that first procurement opportunity, however, things got easier. Two-thirds of active small business contractors reported they have performed more than one federal contract. On average, it took these firms just under a year after their first procurement to win their second contract.

Be selective. The study found that when it comes to bidding on contracting opportunities, there is
a law of
diminishing returns. Businesses that bid on six or more contracts in a three-year period saw their success rate fall below the overall .379 “batting average.” American Express OPEN suggests the best strategy is to concentrate on just a few procurement opportunities annually; don’t submit more than two or three bids per year.

Be patient. The average success rate in obtaining prime contracts was 38 percent. However, success rates were significantly higher among small businesses that had been seeking federal contracts for 10 or more years (53 percent success rate) compared to those who had been seeking federal contracts for three years or less (20 percent success rate).

Has your business bid on government contracting opportunities? Have you found it growing easier or more difficult?

Image by Flickr user Donkey Hotey (Creative Commons)

This entry was posted on Thursday, February 2nd, 2012 at 6:00 am and is filed under Business Development, Sales Process, sales process, Small Business, small business. You can follow any responses to this entry through the RSS 2.0 feed.


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