- By Michael Hardy
- Aug 18, 2003
Amid the ever-shifting winds of federal procurement policies, small-business programs, advancing technologies and agency priorities, companies that serve the government hold on to a few constant truths: Teams matter more than individual companies. Good teams begin with good relationships. Smart companies don't betray the trust of their partners.
Subcontracting is one of the easiest and best ways for a small company to do business with the government. But gaining a place on a team for a particular contract — and developing a good relationship with a prime contractor to smooth the road to future contracts — is never guaranteed.
"When you're a small company, you get a place on the team based on the value that you have, the skills you bring to the table," said Shiv Krishnan, president and chief executive officer of Indus Corp., a multifaceted technology company in Vienna, Va.
Indus is a subcontractor for Science Applications International Corp. on the Environmental Protection Agency's Mission-Oriented Systems Engineering Support (MOSES) contract, awarded in 1998. The company is also a subcontractor to Computer Sciences Corp. and other firms.
To sign on as a partner on a particular team, small companies have to bring talent and a proven track record, Krishnan said. Subcontractors, especially those who haven't worked with the prime contractor before, should not expect to earn an outsized portion of the contract value, he added.
The government's increased emphasis on using small businesses has helped companies such as Indus in abstract ways, but, he said, concrete results are more likely to come from companies' own talent and drive — and by building trust.
"To get through the gate, you have to have capabilities. But just having the capabilities is not going to cut it," he said. "The prime is the one that is going to be putting in the resources to tell a convincing story to the customer. The prime is ultimately going to be held accountable, so they have to be very careful about who their partners are."
The large firms, meanwhile, are looking for small players with specialized skills. And knowing that they hold the final accountability for the success of a project, prime contractors are looking first for partners they know and trust.
Small players should have a track record with the contracting agency, too, said Edward Weil Reyes, manager of supplier diversity at Unisys Corp. Like most integrators, Unisys has an extensive database of information about the history and performance of the small businesses it has worked with.
Both before and after a solicitation is released, "we're looking at strategic small businesses that can help us in winning the business," Reyes said. "We're looking for small businesses that have a foothold with that agency and have a good reputation."
Later, after winning a contract, "when we assemble our team, we're looking at strategic alliances with small businesses that have established themselves with those agencies," he said. "Then we look for whatever niche players there are. We've been doing this for many years, and we're very used to working with small business. We pick those companies again because we've had a good relationship."
The bottom line matters, too, said Andrew Merenda, an SAIC vice president and MOSES contract manager.
"You're looking for a company you know is financially stable," he said. "You don't want to bring on a company that is on shaky financial ground."
Part of the equation is, necessarily, set-asides for specific types of businesses, such as those owned by women or located in Historically Underutilized Business Zones (HUBZones). The government sets minimum percentages for use of such firms, then agencies set internal goals and incorporate specific targets into individual contracts.
Meeting the targets can be difficult, said Gene Davis, CSC's project manager on the Defense Information Systems Agency's $1.5 billion I-Assure II information assurance contract.
Meeting HUBZone goals by tapping companies in impoverished areas is particularly difficult, he said. "When you get down to the HUBZone, if you're extremely fortunate, you find companies," he said. "It can be very difficult even if you can find the work [for them]. Many times they don't have the clearances to do what you need to do. All of our work requires clearances."
Murray Schooner, director of socioeconomic business development at Unisys, has his own list of traits he looks for: "very strong leadership at the helm, hiring the right people, knowing how to market, aggressiveness [and] persistence."
Despite the challenges, integrators continue to look for small firms to form partnerships with. The integrator's role is to assemble a team that can meet the customer's technological and businesses needs, and small businesses are often the best suppliers of specialized technologies.
Likewise, the government's emphasis on hiring small firms is only going to increase, observers say. Contracts such as the Federal Aviation Administration's Broad Information Technology Services (BITS) II are reserved exclusively for small firms, and other governmentwide contracts include a small-business requirement.
It is admittedly difficult sometimes for small firms to meet the necessary requirements, said Carmen Molina, the FAA's program manager for the BITS II contract. In developing the original contract vehicle, "we had a hard time trying to decide [on requirements such as] years of experience, because we knew a lot of the small companies didn't have that many years," she said. "But they needed to qualify and show that they were capable of fulfilling all of the functional areas."
It's precisely for that reason, she said, that the second BITS contract, which is in the process of being awarded, encourages prime contractors to form teams of small businesses that, in combination, address agency needs.
Guarding Against Pitfalls
Over the years, small firms have learned the hard way that although subcontracting lets them avoid the risks of going it alone, it brings its own share of dangers. Prime contractors sometimes hire small companies so they can check off a box on their quota roster for that particular set-aside category and then don't use them. Sometimes communications break down and subcontractors find themselves at odds with other small businesses on the team.
To guard against underuse, small businesses should insist that the contract spell out what each subcontractor is responsible for, said Marlin Newell, president of Base 2 Technologies Inc. in Silver Spring, Md. His company subcontracts to Unisys on a Justice Department contract for the Asset Forfeiture Management/Asset Forfeiture Fund project.
"Small companies generally don't have a lot of capital, and you can't afford not to be paid," he said. "We fill out Unisys timesheets. We're treated almost like Unisys employees. Some [other] companies say, 'We're not going to pay you until we get paid.' Working for the government, that can take awhile. If they held our money for 60 days or longer, we'd be borrowing money to stay afloat. That cuts into your margins when you have to pay interest."
Sometimes the subcontractor gets a time-and-materials arrangement, where the payback is variable but proportional to the company's outlay, Newell said.
"If it is a fixed price, there is a portion we'd be responsible for," he said. "Generally, the contract identifies the number of positions we would fill. On the Unisys contract, if I had a resignation next week, I would be responsible for filling that position, so long as I did it in a reasonable period of time."
Small businesses can protect themselves by having a history of good performance, Newell added. "We've been very fortunate in finding companies that understand we have the capability to be a real benefit. They don't bring us on just to bring us on."
However, subcontractors have to take responsibility for getting work, CSC's Davis said. CSC is one of 11 prime contractors on the I-Assure II contract and has 28 subcontractors. Subcontractors that are going out and finding work fare better than those that sit and wait for assignments, he said.
"We hardly ever come out and say, 'You're going to get X amount,' " Davis said. "When work comes out, I'll look at my subs, the ones that are capable. I'll give the aggressive companies first right of refusal."
"They don't look to guarantee you a percentage of the contract," Krishnan said of SAIC. "Once the contract is won, it depends on how hard you work. In a sense, you're marketing your own capabilities to the prime, so you can get a good chunk of the work."
On the MOSES contract, Indus began as a niche player, a second-tier subcontractor providing geographic systems expertise, he said. Over time, the company became the No. 1 subcontractor, with about 10 percent of the work. "Even though we got in as a niche [geographic information systems] contractor, as time went on, we added more capabilities," he said.
SAIC has helped by managing the subcontractors as an integrated team, Krishnan added, an uncommon approach. When a new project comes up on MOSES, the technical positions are open to all the subcontractors, which allows Indus to compete for work in other areas where it has strengths, rather than remaining restricted to GIS work.
To avoid communication breakdowns and conflicts, subcontractors should respect the role of other small firms on the team, said Laura Mangoba, founder and chief technology officer of Avatar Systems Development Inc. in Great Falls, Va., another Unisys subcontractor.
Unisys manages projects professionally, she said. "There are strict rules that we have to abide by. We don't discuss our contract with the others; we don't discuss our rates," she said. "We're just there to discuss business. Unisys is very serious about [the rules]. I think [a violation] would be an instant dismissal."
Being a team player
Federal contractors, large and small alike, rarely go it alone. Successful business is built on successful teams. Here are a few principles for building strong ones:
* Track records count. Companies prefer to work with partners they've successfully worked with before. Newcomers are not totally shut out, but they have to push harder to get in the door.
* Strengths count. Smart prime contractors assign work to subcontractors based on the specific areas where the subcontractors are strongest. It may seem obvious, but some subcontractors get asked to undertake tasks they're really not equipped for, forcing them to get equipped or struggle.
* Market your weaknesses. In today's federal contracting world, being disadvantaged can be advantageous. Prime contractors are in need of partners in various set-aside categories, with qualified Historically Underutilized Business Zone firms often being the hardest to find.
* Aggression pays. Prime contractors say the small businesses that get the most work as part of contract teams are those that go out and find work to do. Just signing on as a partner does not guarantee a flow of work.