Prime Versus Sub – A Critical Decision

There are a lot of factors to consider when deciding whether to bid as a prime contractor or a subcontractor. Let’s do an overview of these, and then in upcoming posts we’ll examine each role separately for some of the particulars.

1. What is the NAICS code of each company on the bid? For large multiple-award IDIQ contracts that need lots of teaming to fulfill the requirements, the fastest growing companies are most attractive, yet those are also the ones most likely to be affected by any changes to the size standards in a particular NAICS code.
2. What are the recertification requirements? What size will the company have grown to when it’s time to re-certify, and how will that impact compliance with the size standards?
3. As a prime contractor, will you have the customer relationships to keep task orders coming? In a multiple-award contract, there’s actually no revenue associated with winning. The revenue comes from task orders that are applied to the vehicle after award, and you have to bid on those task orders as well. So if you’re going to be successful as a prime contractor in a multiple-award contract, you need to have a relationship with the customer base to ensure that there will be a flow of task orders to the contract. The other alternatives are to team with other contractors who have those relationships, and/or to devote marketing and business development resources to priming the task order pump.
4. Where would you fit as a subcontractor? If you’ve determined you don’t have the resources to make the bid as a prime contractor, then you need to pick a good prime where you can apply your knowledge and capabilities. You must have a clear understanding of the prime’s business model, how they earn revenue, and – most importantly – how they select their subcontractors. Do they select particular companies and let them find the resources to complete the task, or do they ask each company to submit candidates and then the prime chooses the best one to submit with the bid (the “best athlete” approach)?
5. As a subcontractor, do you have the recruitment methods in place to show that you’re providing the “best athlete”? If not, are you willing to invest in recruiting even if it doesn’t result immediately in revenue? Your first-line customer as a subcontractor is the PM (project manager) of the prime contractor. That’s the person who will be allocating the work, so that’s the person you need to nurture a relationship with.
6. As a subcontractor, are you prepared to help the prime contractor get the bid? Will you respond quickly to requests for resumes, details about past performance, or technical expertise? With almost all multiple-award contracts, a prime contractor will not bring in a subcontractor to participate in a task unless that sub also participated in the bid for the task order. Regardless of how hard you work to GET the contract, you must still be willing to go the extra mile after award. As well, understand that as a sub, your rates are subject to a subcontractor handling fee and profit from the prime, which means that if the rate to the government is $100, the prime gets $100, but you will probably get somewhere between $85-$95, but never $100.
7. How might an OCI (organizational conflict of interest) clause affect this bid? As a prime contractor, you are fully subject to OCI clauses, which may disqualify you from future work that follows this contract, because you know too much about that new work. As a subcontractor, on the other hand, you can be “firewalled” off, and therefore won’t be subject to the OCI clause.

We’ll talk more about OCI clauses and other issues in the next blog post in this series, about how to operate as a prime in a multiple-award deal. After that, we’ll address how to operate as a sub.