While the U.S. government is the world’s largest single purchaser of goods and services, the recession has hit government spending as it has other areas of the American economy. A new survey conducted among small business owners who are active federal contractors1 shows that they are working harder for less return than they were a year ago.
A new report, Trends in Federal Contracting for Small Businesses, published by American Express OPEN’s Victory in Procurement (VIP) program, shows that:
- Small businesses are spending more pursuing federal contracts. Over the past year, the amount of time and money that active small business contractors have invested in seeking federal contracting opportunities has averaged $103,827, an increase of 21 percent over the previous year’s investment of $86,124.
- Small businesses are bidding less on contracts. Even as the average investment made in seeking federal contracts has risen over the past year, bidding activity has declined by nearly half—both in prime and subcontracting bidding activity. Further, the average success rates for active small business contractors in both prime and subcontracting have declined as well—indicating a more competitive environment.
- Fourth time is the charm. Active small business contractors reported that they had to submit an average of 4.4 bids before they won their first prime federal contract. Once small business contractors got their first taste of procurement success, they wasted little time before trying – and succeeding – again. Two-thirds of active small business contractors have performed on more than one federal contract, and, on average, it took them just under a year (11-1/2 months) after their first procurement victory to win their second contract.
- Experience pays off over the long run. Average success rates in prime contracting—38 percent overall—are significantly higher among those with 10 or more years of contracting experience under their belts (53 percent) compared to those who have been seeking federal contracts for three years or less (20 percent).
Other key findings in the report include the fact that the investment made in seeking federal contracting opportunities has risen most sharply among minority-owned firms and by firms located in the Midwest. The analysis also indicates that there is a law of diminishing returns when it comes to bidding. Success rates fall sharply as a business surpasses bidding on six or more contracts over a three-year period. Thus, it would appear that the most successful strategy a small firm could employ in the federal marketplace is to pare down and concentrate on just a few procurement opportunities and not submit more than two or three bids per year.
The survey was conducted in mid October through early November 2011, at the beginning of the government’s FY2012 spending year. Preliminary figures from FY2011 indicate that the US government spent $476.8 billion in contract spending in FY11, down 12 percent from the previous year and down from a high of $541.8 billion in FY2008.2
This report is the first in a series of four reports that will be published from the second annual survey among active small business federal contractors. Other upcoming reports will focus on how women-owned and minority-owned firms in particular are faring in federal contracting, how strategies and outcomes change with level of procurement experience, and what lessons can be shared from firms that focus on subcontracting as a procurement strategy.
Download and read the entire 10-page report Trends in Federal Contracting for Small Business. To learn more about American Express OPEN’s VIP program, visit www.openforum.com/governmentcontracting.
1 An active contractor is defined as a business that is registered on the Central Contractor Registry to do business with federal agencies and is either currently performing on a federal contract or has performed on a contract within the past five years.
2 Source: usaspending.gov. FY11 figure as of December 2011.