By Maria Valdez Haubrich
On Independence Day, it seems appropriate to take a look at how well small businesses are succeeding when they pursue federal government procurement opportunities. A new survey of 740 active small contractors by American Express OPEN found that subcontracting to prime contractors and teaming with other small firms to bid on projects are two key tools for small businesses seeking to land federal contracts.
Almost half (48 percent) of small companies surveyed have contributed products and services as a subcontractor. On average, these businesses get an average of 25 percent of their procurement revenue from subcontracts. Teaming, or partnering with other small businesses to pursue federal prime contracts, was used less often: 27 percent of active small contractors have used teaming, and on average it accounts for 9 percent of their procurement revenue. Minority-owned businesses were more likely than the average business to use teaming.
However, subcontracting isn’t without its problems. Almost one-third (29 percent) of active small business contractors in the study say they have been “shut out”—in other words, they contributed as a subcontractor to a bid that won, only to have the prime contractor fail to use them when it came time to fulfill the contract.
Subcontracting clearly leads to bigger things. Almost one-quarter (22 percent) of small firms in the study say they have landed more subcontracting opportunities after successfully completing a subcontract and getting recommended to others by a large prime contractor.
Some industries are more likely than others to use subcontracting. Companies in the information (software, data processing) and professional/scientific/ technical services (computer systems design, engineering, research) sectors are more likely than businesses in any other industry to be subcontractors (62 percent and 65 percent, respectively, compared to the average of 48 percent).
Overall, companies that not only pursue prime contracts on their own, but also pursue subcontracting opportunities and use teaming are much more likely to be successful—not only at procurement, but at business in general. Consider:
- Companies that participate in subcontracting won 21 percent more prime contracts than average (4.7 versus 3.9 over the past three years). Companies involved in teaming won 54 percent more prime contracts (6.0 vs. 3.9 over the past three years).
- These companies also earned more revenue from contracting. Although 24 percent of all active federal contractors have won $5 million or more in federal contracts since they began pursuing federal contracting, 31 percent of those who are active in subcontracting and 40 percent of those who have pursued teaming have reached that amount.
Image by Flickr user mrsdkrebs (Creative Commons)