Studies show that teaming up with a prime contractor may be the fastest way to breach the seven-figure mark. Here's what you need to know.
I'm not a basketball fan, but I know what the stars of tonight's game will be saying tomorrow morning. "It was all about the team." "Everybody on the team hustled." "Teamwork made it happen." Team, team, team: It has become a victory stand cliche.
Well, it turns out that the hardest working word in sports does pretty well in the lucrative game of federal contracting, as well. Sub-contracting, or the related practice of "teaming," can be a highly efficient way to grab an outsized share of the cash that Uncle Sam doles out. About two in every three small businesses that join up on bids with other federal contractors—either as subcontractor or team partners—generate $1 million in revenue. (And 38% of those that "team" pull in more than $10 million.) Only 46% of federal contractors overall hit $1 million in revenues, according to Subcontracting and Teaming, a report by American Express OPEN. For reference, fewer than 5% of small businesses overall manage to crack that seven-figure revenue mark.
Here’s why subcontracting and teaming are so rewarding:
Teaming is a way to expand your resources without actually hiring new people or incurring upfront costs. You don’t have to have everything in-house nor do you have to take on long-term commitments for a limited-time project.
As a subcontractor, you benefit from the halo effect of the prime’s reputation. You become known and trusted more quickly than you could have on your own.
As either a subcontractor or a teaming partner, you expand your market by enlarging the jobs you can bid on.
And then there’s the satisfaction. As Karen Barbour, president of The Barbour Group puts it,
“When you are a small business, you find yourself bidding on scrappy jobs, with no meat in them. You lose enthusiasm. You can’t put your brand on those types of jobs. With the federal government, you have real profit, nice jobs that, when they are done, you can say, ‘Wow! I did that!’ "
What's the difference between subcontracting and teaming? Denise Rodriguez-Lopez, American Express OPEN's advisor on teaming and CEO of the KMJ Company, explains that the two differ in both timing and in relationship. A prime contractor will bid on an opportunity but hire a sub for capabilities the prime doesn’t have. The subcontractor is part of the prime’s team but the prime is responsible to the client.
In teaming, two or more firms get together in advance to pool capabilities so they can bid on contracts none of them is qualified to do alone. The relationship is more equal, she says.
Helpful as these partnerships can be, you still need to exercise considerable due diligence. Rodriguez-Lopez offers some advice:
Get it in writing! Anticipate as many situations as you can and decide:
What is the scope of work you’ve agreed upon?
Who is responsible for each aspect of the work?
Who will be the liaison with the client?
Who will do the invoicing?
How will payments be received and distributed to team members?
Who will retain ownership of any innovations created during the relationship?
How will disagreements be handled?
Vet your potential partner. Subcontracting and teaming are not casual relationships. Make sure your partner has a clean track record, can deal with problems, and is able to deliver as promised. Barbour adds checking with the small business director of the government agency and checking how well they’ve treated teammates, especially certified set-aside partners, in the past.
Be honest. Acknowledge your limitations. You are building a relationship here. If you don’t deliver, you won’t be asked again. Say “no” when the fit isn’t right.