Small Businesses as Primes: Beware the Scorpion

As the 2012 Fiscal Year comes to a close, procurement shops are in full gear awarding contracts in the shadow of sequestration. Many large firms are also trying to close business after months of business development, only to see last minute decisions to make their solicitation a small business set-aside. This creates another potential avenue of abuse, where small businesses are used to “prime” a contract for a large business.

We have seen constant abuse of small businesses as subcontractors, most notably large firms using small businesses to check boxes, win awards, then not provide what was promised. Although small business subcontracting plans are required per FAR Subpart 19.7, they are rarely enforced.

However, the abuse of small businesses as “primes” is really the perfect storm of potential abuse, and calls to small businesses are going on all over the greater Washington area this time of year, as large businesses cannot afford to realize loss of revenues after months of business development, and looking for a pawn to realize profit.

Small businesses struggle to get a toehold in the government contracting arena. It is a very tempting offer to prime a contract for a large business, as it creates new relationships, new sources of revenues, and opportunities for growth. Further, the past performance experience is vital for new work.

However, careful consideration and “bid/no-bid decisions,” similar to submitting a Request for Proposal, need to be made if the small business wants to prevent being used by both government officials, and large businesses.

First, what is the firm’s relationship with the agency, and the contracting official? Understand that the large business has a very close relationship with procurement personnel, and perhaps a relationship that is beyond what many consider ethical or arms-length. The large business is trying to steer a contract to you, but at what price?

Second, and under no circumstances, can the small business allow the large business to occupy the program manager (PM) position. The large business will make the case that they have the relationship, they understand the customer’s needs and requirements, and they are better positioned to support the client. Further, they may play hardball, and insist that they get the PM position, or no deal.

Be prepared to walk away. The benefits do not outweigh the costs, as it is the small businesses’ past performance and reputation on the line, not the large business. The arguments made by the small business are false. If you could not support the customer yourself, how can you even be considered for the award?

Small businesses are trusting large businesses to treat them fairly, equitably, and to ensure mutual success. Seems like a no-brainer? Think again.

In this treacherous environment of government contracting, the competition is ferocious, and every penny is being accounted for, as large businesses need to weather the storm and keep margins and market share stable.

From the perspective of the large business, why not use a small business to get 49% of a contract, and then undermine them to get it all? Again, it is not their reputation or past performance that will suffer, and they have positioned themselves where they can show they are not at fault. Anyway, there are a hundred small businesses at the door waiting for the same “opportunity.”

Further, the undermining is convincing the procurement official that a small business cannot do the work, or to prevent a socioeconomic set-aside designation, so now the large business is in the position to get it all. They may even go as far to write the Determination and Findings for the procurement official!

Regretfully, this happens much more than either side wants to admit. Accountability and oversight are lax to begin with, but at this time of the year, contractual irregularities happen with an alarming degree of frequency to satisfy last-minute requirements, spend money, and award contracts. Leadership is simply asleep at the switch, and OSDBU offices seem to be shrugging their shoulders at these complaints.

Before you put the scorpion on your back to cross the river, understand that the scorpion has a stinger, and is prepared to use it. Only in this scenario, the small business drowns by itself.

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