How to Prime Your Small Business to Win More Prime Government Contracts Pt. 1

Austin, TX

Some recent surveys claim that small businesses are losing ground in government contracting. However, the Small Business Association reports that the federal government has once again achieved its annual small business contracting goal, hitting the mark for the third year in a row. So, why the discrepancy?

We could speculate the many reasons why small business owners feel a slight dip in optimism regarding federal contracting opportunities. The number of small business prime contractors has decreased the last seven years, and feedback from the latest annual American Express OPEN for Government Contracting survey, along with a second federal contractor survey released on May 30, indicate that competition is becoming fiercer than ever. This could be due to:

  • An increase in new market entrants that are driving down pricing at record rates;
  • A rise in agile IT projects – or other large system initiatives – that require highly specialized experts with the ability to demonstrate their abilities in real time. This “show, don’t tell” procurement model disqualifies many companies out of the gate (while opening the flood gates for many companies that would otherwise not be able to sustain a multi-year waterfall project).
  • A decline in bid opportunities overall;
  • A stronghold of incumbents that secure contract re-awards or extensions (even though the Grant Thornton study indicates incumbent win rates area dropping year over year).

Regardless of the underlying drivers, this increased competition is causing small businesses to spend more on their government “sales” efforts. The American Express survey revealed that small businesses “spent $148,124 in time and money to bid for federal work in FY15 [the last year measured. That’s a 72 percent increase over the previous six years, and a 15 percent increase since 2013.” The good news is that the investments are paying off. Between fiscal years 2012-2015, “nearly half of prime contract bids were successful, and two-thirds of subcontracting participation likewise yielded some contracting activity.”

That being said, not every small business has the resources to actively invest hundreds of thousands of dollars in the pursuit of government contracts that aren’t a sure bet. Nor can all small businesses afford to risk their livelihood on a single business opportunity that won’t necessarily payoff right away; many government contracts’ competitive pricing criteria result in profit margin reductions and increased operating expenditures that can strain businesses with minimal working capital. 

That doesn’t mean that small businesses have to take big risks to strengthen their competitive position when competing for prime government contracts, or even subcontractor opportunities. They just need to be more strategic in their “sales” approach and more diligent in their market research and response preparation. Next week we will touch on the 6 things you can do to be more strategic in your approach.