The U.S. government is the world’s largest single purchaser of goods and services. According to USAspending.gov, the federal government spent $536 billion on contracts in fiscal year 2011 with outside providers of goods and services. Within that figure are not only prime contracts awarded to businesses large and small, but also many subcontracting successes for small businesses.
A new report looking at the extent to which small businesses are pursuing subcontracting opportunities has recently been published by American Express OPEN. Subcontracting and Teaming: Important Avenues to Procurement Success finds that nearly half (48 percent) of active small business contractors have contributed products and services as a subcontractor, deriving an average of 25 percent of their procurement revenue from subcontracts.
Teaming and Other Findings
Teaming (banding together with fellow small business owners on a more or less equal basis to pursue larger prime contracts than any could compete for alone) is pursued less frequently. Just over one-quarter (27 percent) of active small contractors have had some procurement revenue from teaming, garnering 9 percent of their procurement revenue from this activity.
Other key findings from the analysis include:
Small firms in two industries—the information sector (software, data processing) and professional/scientific/technical services (computer systems design, engineering, research)—are the most likely to be engaged in both subcontracting (62 percent and 65 percent, respectively, compared with the average of 48 percent) and teaming (42 percent and 40 percent, respectively, compared with the average of 27 percent).
Women and minorities are equally active in subcontracting as the average small-firm contractor, but minorities are more likely than average (35 percent compared with 27 percent) to be engaging in teaming.
Nearly one-third (29 percent) of active small-business contractors have experienced the oft-discussed phenomenon of being shut out by large prime contractors, meaning that they participated in a winning bid as a subcontractor, but subsequently did not participate in the fulfillment of that contract. The likelihood of this happening to a business rises with level of procurement experience.
On the flip side, nearly one-quarter (22 percent) of active small-firm contractors say that they have gotten other subcontracting opportunities after being recommended to a large prime contractor by a prime that they had performed successfully for in the past. This, too, is more likely to have happened to larger, more experienced small firms, as well as those in information and professional/scientific/technical services.
While engagement in subcontracting and teaming rises with business size and procurement experience, the share of revenue from these two activities declines as small firms grow—mainly due to increased success in obtaining prime contracts. Firms that have been in the federal procurement marketplace for three years or less derive half of their contract revenue from prime contracts; that share rises to 60 percent among small firms that have been active federal contractors for a decade or more. Thus, pursuing subcontracting or teaming can be an excellent way for small-business owners to gain procurement experience, expand their networks, and improve their chances for contracting success.
Read the full report "Subcontracting and Teaming: Important Avenues to Procurement Success."
For resources and tips on how to pursue federal government contracting opportunities, visit http://www.openforum.com/governmentcontracting. And to learn more about this and other reports focused on small business challenges and successes in federal contracting, click here.
Julie Weeks is the president and CEO of Womanable.