Savvy Small Businesses Find Success in Government Subcontracting

2 minute read

Don’t let the diminutive prefix fool you: Working as a subcontractor on government projects can be more lucrative than being the prime contractor—at least for small businesses.

According to recent research, subcontracting and teaming could lead to “greater procurement success” for small businesses when federal contract spending is flat.

A recent report from the American Express OPEN for Government Contracts Program says that “the majority of contracts performed by active small business contractors are prime contracts (performed directly for a federal agency), both subcontracting (providing goods or services to a prime contractor) and teaming (a formal arrangement wherein multiple firms jointly pursue contracts together) are becoming more important avenues for small business owners to pursue to achieve victory in procurement.”

Data from the company’s survey of active small business contractors indicates that subcontracting activity among small businesses rose between 2011 and 2013. In 2013, 64 percent of small businesses that actively pursue contracts with the government reported working as a subcontractor in recent years. That was up significantly from the 48 percent who reported such in 2011’s survey.

American Express says teaming activity is also up, even more significantly than subcontracting. In 2013, 47 percent of active contractors reported having been part of a teaming arrangement; that’s up from 29 percent in 2011.

Three years ago, active contractors reported that 10 percent of their contracts were teaming arrangements; that share rose to 14 percent in the 2013 survey.

Pursuing subcontracting and teaming opportunities is still an expensive undertaking for small businesses. In fact, American Express found that average investments for those activities are greater than for contracting. “Compared to the overall $128,628 average annual investment, firms involved in subcontracting invest $156,488 pursuing federal contracts, while those involved in teaming are investing $201,266.”

But the payoffs are bigger too. Investing in subcontracting and teaming yields greater rewards, including more positive impacts on employment, revenues, and firm profitability, according to American Express.

And, apparently, success rates are higher too. Only 27 percent of active small business contractors have participated in a winning bid as a subcontractor, yet subsequently were not included on the contract team. More often, subcontractors receive referrals from satisfied prime contractors.

Wisdom comes with experience in the federal procurement game. American Express finds that the propensity toward performing as a subcontractor or as the member of a teaming arrangement increases with experience. Firms with 10 or more years procurement experience are more likely than less experienced firms to find success as a subcontractor or team member.