For many small businesses, the federal government can be an important customer — and, in some cases, the most important customer. And the competition for that key customer, through bidding, is often a fierce and expensive one.
As noted in recent research across more than 500 firms released earlier this month via the American Express OPEN for Government Contracts Program, the cost tied to bidding by smaller firms continues to rise. In the latest data, small businesses nationwide received $352 billion in federal government contracts in 2015.
But against that backdrop, the cost of working with the government and in bidding and gaining contracts is up as much as 15 percent over three years, and now, that figure stands at an average spend of as much as $148,124 on pursuit of federal contracts. That outpaces the $126,628 spent in 2010.
In an interview with Lourdes Martin-Rosa, American Express OPEN advisor on government contracting, Martin-Rosa noted that, for small business owners, the onus lies on them to spend time and money in conducting market research on contracts at $1 million and below, and as part of that process, many firms must scramble to conduct such activities, often with limited staff. “You have to respond,” she said of the process, “or the business will go to a larger firm.” Larger firms have been defined as those with at least $5 million in revenues and an average of 50 employees.
And as part of the bidding process, she added, should the smaller firm not have been an incumbent, the fact remains that they must show cost and time efficiencies that could measure up favorably against the firm that was in place. But as businesses jockey for position, 62 percent of active contractors said that they agreed with the statement that it is tougher to win contracts as there are several bidders for each contract, up from 52 percent that agreed with that statement five years earlier.
The mandate stands that the federal government must award 23 percent of its “prime” contracts to smaller firms, and so, there is opportunity for SMBs to capitalize on that substantial potential business. But, said the executive, many smaller firms do not take advantage of alerts and industry resources. Any contract over a $25,000 threshold must be published on the Federal Business Opportunities site. Also, agencies must publish procurement forecasts on their respective websites, and SMBs can assemble research and staff and reach out to small business offices housed within each agency.
Among the firms that could benefit from better knowledge about what resources are out there, Martin-Rosa said, are minority-owned and women-owned firms, who could benefit from programs such as the 8(a) Business Development Program, which provides development assistance to socially or economically disadvantaged owners. That assistance may be of value as firms owned by minorities invested, at nearly $153,000, 6 percent more than firms owned by Caucasians. Women-owned firms invested a bit less than $108,000 in their pursuit of government business in 2015. Martin-Rosa said a relatively lighter level of investment comes with a lack of awareness of what opportunities might lie out there.
Upon winning a bid, Martin-Rosa stated that firms must make sure their back-office functions remain responsive, on a technology and accounting basis, so that, during activity as a project progresses, billing can take place in a timely manner. The government has programs in place known as “prompt payment,” where payments to small businesses offering proper invoices within guidelines can be paid in as few as 15 days.
And, added Martin-Rosa, as firms are awarded contracts — and, of course, before beginning work — financing through existing bank relationships are usually necessary, via corporate credit cards or revolving lines of credit, for example, providing working capital needed to have staff and materials in place to begin work.