The American Express OPEN for Government Contracts Program recently released their third survey of small business owners who are active federal contractors. You can read a summary of the report here or download the report here.
The report notes that in FY2011, the federal government spent 21.7% of their budget on small business contractors, less than the 23% procurement goal. It’s important to keep calling attention to how some major government agencies are not meeting their small business spending goals, but what I found really interesting was the fact that newer federal contractors reported that it was easier and quicker to win their first government contract than those who’ve been in federal contracting longer.
There are two different things going on here – one is that people who’ve been involved in contracting for a long time tend to go after bigger opportunities and therefore have more competition. Anyone in this situation has experienced the phenomenon that because of budget problems, sequestration, and the lack of a published budget, these projects keep getting resolutions; everything gets pushed to the right and it takes longer to get contracts awarded than it has in the past.
So while it may seem that newer contractors are doing better than experienced contractors, if you look at it from a monetary standpoint I’d bet the conclusion would be different. In longer-term contracts you can be in the procurement phase for 10 years and it can take three years to get anywhere. Those numbers don’t surprise me at all, especially when you consider a central theme we’ve pointed out many times on this blog:
Business is about relationships. And relationships take time.
This is especially important when you’re building a project that represents bigger contract dollars, if only because the bigger the revenue, the harder it is for the government to contract with you. A small contract can be issued as a purchase order, while a large contract must be issued as some kind of competition.
This leads right into the next finding in the report – small business contractors are investing more time and money on federal contracting opportunities – 49% more in 2013 than in the three previous years. It is definitely true that winning federal contracts takes a lot of time, and time equals money. A high level of investment is necessary no matter how small your firm.
It’s important to understand that the numbers thrown around in this report represent averages of people who happened to respond to a survey. Take the actual numbers with a grain of salt, but you can clearly make the link that it costs money and time to get to the stage of having contracts.
The last thing I’ll point out today from this report is that federal subcontracting is clearly relatively more successful in priming (working as a subcontractor to a larger business). I say relatively because the data shows that the number of bids to success rates is holding at a steady pace, but that successful bids are much higher for a lower cost to the companies bidding as subcontractors.
Basically, it’s less cost for more return, but with no difference in relative marketing or cost incurred for that increased result. Even though subcontractors lose a bit of their revenue to handling fees paid to their prime contractor, the prime takes on more of the marketing expenses. I wrote about other aspects of the prime versus sub debate in an earlier article.
In a follow-up post, I’ll comment on more of the data included in the American Express OPEN for Government Contracts report; we’ll look at trends for particular types of small businesses such as minority contractors and women-owned contractors.