Small Business Contracting in 2012, a Challenging Environment

Posted on January 7, 2012 in Small Business

Part I of this series focuses on the environment for small businesses as they engage other firms as a subcontractor.

Last month, the Fairfax County Chamber of Commerce conducted a panel to highlight the issues facing small business government contractors, and discuss strategies for future success.

Although the panel provided sound advice, what did not get much attention was the current and future environment that small businesses face as they navigate the rough waters of government contracting.

Government contracting is not for the faint of heart. It takes an enormous amount of patience, perseverance, and extremely thick skin to be successful, as rejection is the norm. To be successful, small businesses need to understand this environment and the challenges they will face, and then execute the strategies the panelists discussed.

Nonetheless, small businesses are at a particular disadvantage in the federal market, as they are getting squeezed on all sides. Mainly, small businesses are feeling significant pain in the normal path to growth: subcontracting.

One of the real threats to success is the current budgetary environment, which means less opportunities to provide products and services to the federal government. This also means even fewer opportunities for small businesses. One only need look at the recent report from American Express OPEN for Government Contracts [PDF] to see the trend: fewer opportunities overall, and more investment in chasing the opportunities that do exist.

Further, many small businesses continue to complain about difficulties in dealing with other businesses, specifically large businesses. A recent post on the Federal Government Contractors Group (closed group on LinkedIn) summed up the frustrations that small businesses face in their teaming and subcontracting partnerships, partnerships that often fail to pass along contracted benefits and obligations to the small business.

Recently, I learned of a small business that was treated unscrupulously by a large firm, a company that was experiencing many of the frustrations that were posted in the LinkedIn group. This small business, by all accounts, was performing very well and providing the value-added services the client needed. However, the prime was not passing on the rate increases it was receiving after options years had been exercised. The small business discussed with the prime, and the prime told them to wait 30 days. At the end of the 30 days, the staff for the small business was told that their contract was terminated immediately, badges were collected, and the staff was escorted off the client site. Regretfully, the small business had no recourse, and were forced to layoff the staff before the holidays.

It is a fact that many small businesses continuously get treated unfairly, and nothing really ever happens to the offending business. Small businesses can only hope to attract attention from a prime by bringing them an opportunity, and then hoping for the best.

Their defense is research, due diligence, and legal documents that will deter unethical behavior. More importantly, there needs to be recourse, both through the courts and the government. Teaming agreements can be air tight, but some primes simply disregard them, as they have the contract, the size, the power, and the resources to shrug their shoulders. Further, the Defense Authorization Bill signed recently actually continues this lack of transparency when it comes to small businesses.

Most firms act ethically and honestly, but more and more it is becoming a crapshoot that they will do the right thing. Most teaming agreements can be vague and generic, in that it allows for unscrupulous conduct after contract award. Mainly, not getting the positions promised.

Regretfully, being a small business and a government contractor is becoming more difficult, as large firms and the government squeezes them from both sides.

Small businesses need to understand not only the great advice from the panel, but the environment as well. Being a small business government contractor is not easy, but with patience and perseverance, combined with an understanding of the environment, success can be reached.

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