The world turned upside-down
- By John Moore
- Dec 12, 2004
Anteon and AcuSys have a teaming arrangement with a twist. In September, the companies won a five-year, $10 million pact to build Web-based forms for the Agriculture Department's Food and Nutrition Service (FNS).
That's nothing unusual. But AcuSys, a $2 million small business, holds the contract, while Anteon, an integrator raking in more than $1 billion a year, is the subcontractor.
Such role reversals run counter to typical prime/subcontractor configurations. But both small and large companies can benefit from changing places: A small firm can tap its larger counterpart's knowledge, experience and purchasing power while a large integrator may gain access to new accounts and revenue sources. As an added bonus, the larger firm doesn't have to slug it out in a full-and-open competition. As bid and proposal costs go down, profit margins go up.
In fact, partnering with small-business prime contractors generally "brings more revenue and brings more margin," said Bob Guerra, a partner at Guerra, Kiviat, Flyzik and Associates, an information technology consulting firm.
The government, in theory at least, gets the best of both worlds: the agility of a smaller company and the depth of a larger services provider. The partnerships also offer a vehicle for achieving the government's small-business contracting objectives.
Benefits aside, the inversion of roles doesn't come without effort. The parties must heed ingrained ways of doing business, and managers may find themselves navigating topsy-turvy reporting relationships. Participants, however, believe the rewards are worth the occasional awkwardness.
Benefits all around
Jerry Kuo, president and chief executive officer of AcuSys, said company officials have learned from their much larger subcontractor. AcuSys' strength lies in software development, but company officials found they needed help bolstering their project management and quality assurance practices.
"Anteon has resources we can borrow and emulate," Kuo said.
Anteon has also benefited from the partnership with AcuSys. The project represents a new piece of business for Anteon, said Tony Azar, vice president of IT solutions at Anteon.
USDA officials are pleased with the nontraditional contracting arrangement, which is a first for FNS. Carol Clem, chief of the Program Reports Analysis and Monitoring Branch of the service's Budget Division, said the unusual prime/subcontractor configuration is new for the department.
Clem said the integration between the two companies has been seamless. "As far as we are concerned, it is working fine," she said. The partnership also contributes to the USDA's small-business contracting goals.
Like Acusys, Systalex officials have discovered the advantages of working with a large-business subcontractor. Systalex is a small business serving as the prime contractor on a $79 million contract to operate and upgrade an enterprisewide business systems support center at the Commerce Department. Company officials, teaming with subcontractor Accenture, have been able to take advantage of the larger integrator's business process re-engineering expertise on the project, said Ron Smith, vice president of enterprise financial services at Systalex.
But the impact reaches beyond the immediate project. "We are going through Capability Maturity Model certification, and we met with [Accenture's] quality assurance staff," Smith said. "We discussed their processes and procedures ...and compared them to what we are doing." The dialogue has helped company officials refine their quality assurance program.
Commerce officials encourage small-business mentoring and plan to build it into upcoming acquisitions, said Michael Sade, director of acquisition management at Commerce. Inverted prime/subcontractor relationships are especially conducive to mentoring, he added.
All of this looks promising, but small-business/large-business teaming has some drawbacks. Some small-business owners have claimed that larger businesses grab the majority of the work in a partnership, even when the larger company is supposed to be subcontracting.
According to the Federal Acquisition Regulation, at least half of the work on a small-business set-aside must be performed by the small business. Sade said Commerce uses market research to determine whether a small business can meet that requirement on a given procurement.
Once an agency gives the green light for a small-business/large-business bid, officials at the businesses must work out the details. Teaming arrangements that invert the conventional order have many challenges.
Cultural issues are one potential hurdle. "Everybody is used to doing work their own way," said Tom Ferrando, president and chief operating officer of CherryRoad Technologies. CherryRoad officials brought on Northrop Grumman as a subcontractor on the Army Knowledge Online project. "When we started, everybody went where they wanted to go," but their goals did not always mesh, Ferrando said.
The result was schedule slippage. To address the issue, the companies created an executive steering committee to bring the team together and get the contract back on track. The committee meets monthly, and company officials hold more informal discussions over dinner. Ferrando said the meetings are crucial to avoiding miscommunication.
Systalex officials also found that staying on track with partners can prove sticky. When Systalex sought to negotiate a subcontracting pact with Accenture, the latter company "was trying to be very helpful in sending us their standard agreement," Smith said. Systalex officials politely said, "no, thanks," and used their own standard subcontracting documents.
Creating an integrated project team is another move toward smoothing interactions between large and small companies. On some contracts, officials divide the work among teams of employees from both companies. Individual teams could be managed by an employee from either company.
The four AcuSys and Anteon teams working on the USDA project are split down the middle: Two are managed by AcuSys and the other two by Anteon. The resulting reporting matrix can resemble a game of Twister. AcuSys' Kuo has reported to Anteon's Azar in some situations, while Azar has reported to Kuo in others.
Ferrando said he believes customers benefit from the successful union of small and large. Small businesses offer agility, while large integrators possess a breadth of experience, buying power and a deep talent pool, he said.
"Marry the two together, with the small business as lead, and the customer really wins," he said.
Moore is a freelance writer based in Syracuse, N.Y.
Is small-business contracting getting better?
The history of partnerships between small and large businesses is dotted with abuses, mistakes and misunderstandings.
But some industry watchers believe the worst is in the past. Bob Guerra, a partner at Guerra, Kiviat, Flyzik and Associates, an information technology consulting firm, said procurement reform and the resulting wealth of contracting options have made agencies' acquisition of IT goods and services faster and easier. Therefore, the motivation to award a small-business set-aside as nothing more than a front for a large business has gone away, Guerra said.
"There are many opportunities today to contract quickly and efficiently," said Jonathan Aronie, a partner in the government contracts group of Sheppard, Mullin, Richter and Hampton.
Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources, said mentor/protégé programs have contributed to an improved contracting atmosphere. Such programs have "really developed a much more healthy relationship between small businesses and large businesses," he said.
Not every observer is convinced of the improvement, however. "I've seen abuses at every level," said Lloyd Chapman, president of the American Small Business League. As for small-business prime contractors, Chapman said he is concerned that the profit might stay with big business, regardless of who gets top billing.