How and When to Progress from Sub to Prime Status as a Small Government Contractor

Published by Matt Brady | June 7, 2017

Government contracting is a complex and highly regulated business, which requires successful companies to demonstrate extensive qualifications and past performance in order to win contracts. With that in mind, the vast majority of small government contractors build their business in the subcontractor side of the market, focusing on bringing specific qualifications or capabilities to an overall team led by a larger and more recognized lead player (the prime).

However, as in any industry, the best opportunities and greatest profit potential usually accrue to the prime contractor. With that in mind, many small government contractors inevitably begin considering moving up the food chain and becoming prime contractors. The question is, how do you know when you’re ready to make the leap — and how do you make the shift effectively?

Recognizing the Requirements and Responsibilities

First, it’s important to recognize that make the transition is a long-term play. That is, you should be planning to own and grow your business for some time if you are going to make this change happen and see the benefits of fully impact your bottom line. This is particularly important to consider if your company presently benefits from specific certifications that will disappear over time or based upon the company’s size.

Second, it’s important to consider the logistics involved in serving as a prime contractor. The role of the subcontractor is generally focused on two things: providing rates and resumes to the prime contractor in a planning support role; and delivery people or work products to the customer. Once you become a prime contractor, things become much more complex.

For a small prime contractor who is pursuing contracts without a team, you now need to oversee the proposal and capture process as well as the technical demands of the capabilities matrix and other components. For a small prime contractor that is playing ‘big league ball’ and building teams to deliver complex projects, you need to do much, much more both in terms of contract capture and in terms of contract compliance. Remember that as a prime contractor, the buck stops with you…all the time, every time.

Third, as a prime contractor you become the manager responsible for all systems and processes, and ultimately the entity that must ensure all aspects of compliance. For example, there are federal acquisition regulations impacting six specific business systems that the federal government requires of most prime contractors. They include accounting, earned value management, estimating, material management and accounting, property management and purchasing. The key here is to recognize that your business systems and infrastructure must pass the test (and keep passing the test) in order for you to survive as a prime.

Making the Leap from Sub to Prime

So, let’s suppose you’ve decided to take the leap and begin competing as a prime contractor. What are some keys to success you should bear in mind during this transition? There are three priorities to keep in mind if you are to effectively compete as a prime in the federal contracting space.

The first step is to build out your firm’s technical capabilities, including offerings and your competitiveness in each of the areas you service. To do this, you need to build a bench of talent that has significant industry knowledge and experience; prove that your firm can deliver innovative solutions that are not simply ‘cookie-cutter’ mirrors of what others offer; deliver highly in-depth customer knowledge (this means focusing on certain capabilities delivered to specific agencies, repeatedly over time); and back this up with a combination of proven past performance and competitive pricing.

The second step is to build out your subcontractor teaming partnerships and use that network to add in-depth domain knowledge and further experience to what you already offer. This builds on the first step but expands it in both capability and complexity, since you’re involving other companies in the equation. Make sure to carefully vet potential teaming partners and work closely to ensure that they feel fully supported by you as their prime. This is essential so that you can deliver a stable, proven overall team as a prime contractor.

The third step is to develop an in-depth bench of qualified subject-matter experts. Put another way — once you’ve built a network of potential subcontractor teaming partners, build a network of potential individual team members. Recruiting and talent management are essential capabilities that every prime contractor must built out if they are to sustain their position in the market over time. In addition to billable resources, you also need to build a talented team of professionals on the operations, support, administration and contract management sides of the business — including business developers and technical proposal writers, as well as a solid team overseeing HR and accounting.

With these three steps in-hand, you’ll be building a strong business that has a matrix of capabilities delivered by a mix of in-house, teaming partner and contracted talent and supported by a solid back-office operation that will keep you compliant and ensure operational effectiveness and accuracy.

Making the jump from subcontracting to prime contracting in the federal space is a huge leap — one that can deliver huge rewards but only if you take huge risks. Proceed cautiously and strategically if you commit your firm to this shift, and make sure to work closely with your CPA, attorney and other key business partners to maintain your cash flow, protect your market position and ensure ongoing compliance as you build your government contracting business for the future.

Image Credit: PEO ACWA  (Flickr @ Creative Commons)