Small businesses spend more on federal contracts

NEW YORK (AP) — Small business owners are spending more time and money to get federal contracts, but they're also making fewer bids to get those contracts.

Those are some of the findings of a survey of small business owners released Wednesday by American Express. The survey, which questioned 684 owners, found that it's getting more expensive to bid on a contract, and that a drop in government contracting dollars has contributed to a decline in the number of bids that small businesses make. As a result, companies are getting less of their revenue from federal contracts.

The survey was taken in February and March, and asked owners about their contracting activity in 2012. So it doesn't reflect the decline in federal contracting expected to result from federal budget cuts that took effect on March 1. Those cuts are likely to further reduce bidding by small businesses.

AN INVESTMENT OF TIME AND MONEY

The survey found that small businesses spent an average of $128,628 in time and money seeking federal contracts in 2012, up 49 percent from $86,124 in 2010.

The largest companies in the survey, those with 50 or more employees, spent $257,098 seeking contracting opportunities in 2012, well above the $37,172 that businesses with fewer than 10 employees spent. That's not surprising given that larger firms have more workers to devote to the bidding process, which can include product research and development along with formulating and writing bid proposals. And they have more people to execute the contracts.

The industries in which companies spent the most on bidding were construction, where the average outlay was $172,058, and information services companies, which spent an average $169,948.

Women owners are making a bigger investment in bidding than they did a few years ago. The survey found that in 2012, women-owned businesses invested $112,112 toward contracting opportunities, 82 percent of the $137,040 that firms owned by men spent. In 2009, women-owned firms invested 76 percent of the amount of money that their male counterparts put toward bidding.

THE PACE OF BIDDING IS DOWN, AND SO IS REVENUE FROM CONTRACTS

The number of bids that contractors have submitted has fallen sharply since 2007. The survey found that between 2010 and 2012, companies made an average 5.5 bids on contracts on which they would be the primary contractor, and 3.6 bids where they would be the subcontractor. That's down from an average 19.5 bids as primary contractors, and 7.9 as subcontractors from 2007-09.

Over that time, the amount of money that the government spent on contracts also fell. After spending $540.9 billion on contracts in the 2008 fiscal year, the government spent less each year through fiscal 2012, when it spent $517 billion.

The slower pace of bidding might be a factor in the higher success rate that bidders have been having on primary contracts; with fewer bids, there's less competition. Owners said their bids were successful 55 percent of the time, on average, up from 41 percent three years earlier. The subcontracting success rate was 86 percent, down slightly from 90 percent in 2007-09.

The drop in bidding is likely behind a drop in the percentage of revenue that companies get from contracting. Between 2009 and 2012, the amount of revenue that companies attributed to contracts dropped to 19 percent from 38 percent. Companies have been making up that shortfall by turning to other customers including state and local governments, non-profits and individual customers.

SUCCEEDING MORE QUICKLY

First-time contractors are winning that initial contract faster than their counterparts did in the past. In 2012, it took companies two years and 4.7 unsuccessful bids to score that first contract. Just a year earlier, contractors said it took them 16 months and 4.4 unsuccessful bids.

That might also be a function of the shrinking number of federal contracting dollars. Companies that have been contracting for 10 years or more say it took them 2.9 years and 5.6 unsuccessful bids before they landed their first deal with the government.

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