Want a piece of the $500 billion the U.S. government spends on goods and services each year? Your chances of winning a federal contract are better if you team up with other small businesses, says a new study.
Compared with so-called "active contractors" overall – "active" being defined as a small business that's received a government contract within the past 3 years – small-business owners who paired up with other small firms or acted as subcontractors won 50 percent more contracts, according to the American Express OPEN Victory in Procurement report. The survey included 1,500 small-business owners chosen randomly from the Federal Procurement Data System, which logs all federal contracts.
Two-thirds of small-business contractors that have partnered with other small firms to jointly bid on contracts have won more than $1 million in federal contracts to date. A further 38 percent of the same group has won in excess of $10 million.
Small businesses that hitch themselves to a larger contractor also have a higher hit rate than average, says the report. Some three in five small firms (61 percent) that act as subcontractors report winning federal contracts worth more than $1 million to date, compared to 46 percent of "active contractor" small firms. Nearly a third (31 percent) of small companies who have subcontracted have won more than $10 million, compared to 21 percent of all active contractor small firms.
Firms tend to turn to subcontracting first, usually when revenues from the contract reach $250,000. Partnering typically occurs around the $1 million mark.
The increased revenues garnered from partnering and subcontracting don't come cheap. Active contractors invest more than $86,000 in cash and staff time pursuing contracts. Firms that go for subcontracting pour some $122,685 annually into their efforts, while partnering with other small firms in pursuit of federal opportunities costs $149,317 on average per year.