In this corner

Small firms ready for the bell in the fight for larger contracts

As the federal government seeks greater savings by awarding supersized information technology contracts, small-business owners are finding it tougher to win small, short-term contracts within their budgets.

But some small businesses have discovered ways to thrive in the new procurement environment by using a variety of unusual teaming agreements. The benefits of teaming are widely known, but some companies have hit on innovations that elevate a simple team arrangement into something more creative, and potentially more appealing to agencies seeking contractors.

"I'm not going to spend my time lobbying the government to change the standards for small business," said Vish Varma, vice president for corporate development at AlphaInsight, a small business that provides software development, network engineering and information security services. "I've got a disadvantage in size and resources. But if I have an advantage in creative ideas, then I lead with my advantage."

Varma's efforts have made him a kind of Pied Piper of innovative team agreements in federal contracting. He often bypasses standard prime/subcontractor agreements in favor of what he considers to be more advantageous pairings.

Federal procurement officials often consolidate agency requirements for IT products and services so they can award larger contracts to fewer suppliers. Called contract bundling, the practice has always been controversial. Small firms are also concerned about a growing preference for vehicles that are conceived as massive procurements from the outset, such as the General Services Administration's forthcoming Networx contract.

Some small businesses, faced with the apparent inevitability of larger procurements, are looking for ways to compete despite the trend. It has eliminated some prospects for small businesses to become prime contractors, but it has created new opportunities for small businesses to team with one another, said Guy Timberlake, co-founder of the American Small Business Coalition, a trade group for small government contractors.

Small businesses must do their homework before choosing a teaming agreement for a particular federal contracting opportunity, Varma said. They must have discussions with federal officials long before they officially solicit bids.

Varma said small-business officials need to have a clear understanding of the government customer. They need to understand what the customer wants to buy and whether it is receptive to the type of small-business teaming arrangement the companies are proposing.

With that knowledge, Varma persuades officials at other companies to become teaming partners. He can often put together the right mix of expertise and skills to win government contracts requiring a wide range of competencies.

"It's legally difficult, and it's risky," he said. Each creative teaming agreement requires sitting down with a lawyer and writing rules of engagement that assign clear responsibilities to each party. But Varma has found that such agreements often generate a higher level of commitment and trust than standard relationships between prime contractors and their subcontractors.

Federal procurement officials are most comfortable with more traditional arrangements, said Louis Victorino, a partner at Sheppard, Mullin, Richter and Hampton, a Washington, D.C., law firm. "When you start getting joint ventures or general partners, they sometimes get a little bit confused as to who it is they're dealing with," he said. But in some procurements, alternative teaming agreements might be quite acceptable, he added.

Varma said creative teaming helps AlphaInsight overcome the disadvantages of the company's small size and limited financial resources. But other small IT services companies are still seeking their way in the new procurement environment.

"The move to larger procurement vehicles is a very challenging transition for small businesses," said Nathan Diemer, executive vice president and chief operating officer of DreamHammer, a small business specializing in software and network engineering, information assurance and disaster recovery services.

One of those challenges is the length of time required for the government to award a large contract and for small businesses to recoup their investments by winning a place on those contracts. A company like DreamHammer spends up to 8 percent of its annual revenue to become part of a winning team in a large federal procurement, said Nelson Paez, DreamHammer's president and chief executive officer.

That is a lot for a small firm. When the business fails to get onto a big contract or gets onto one that is later canceled, it typically doesn't have sufficient financial reserves to compete for other contracts in the same year, Paez said.

Varma agrees that consolidation in federal contracting is a threat to small businesses. "I don't mean to be blasé about it," he said. "My basic message in all of this is creative teaming."

Winning ways

Small-business information technology companies often find it necessary to form teams with other small companies to win federal contracts or expand their federal business, said Vish Varma, vice president for corporate development at AlphaInsight (left). The company is pursuing four types of teaming arrangements, mostly with other small businesses.

Here are the different types of teams:

  • Limited general partnership: Two or more small businesses pool their resources to form a new company to bid on a federal contract.
  • Joint venture: One or more small businesses team with a group of federal employees to bid on a federal contract under a procurement policy known as Circular A-76.
  • Shared expertise: Two small businesses sign a three- to five-year agreement to gain access to specific expertise or skills that the other company possesses.
  • Cross-region: Two small businesses sign a three- to five-year agreement to exchange revenue on existing contracts and give each other an entrance into regional markets in which being a local player is essential.

— Florence Olsen

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