- By Tania Anderson
- Jun 28, 2004
No one has ever said that finding a mate in love or in business is easy. For government systems integrators, finding that perfect subcontractor is a critical step in the bidding process. The right partners can win contracts — and the wrong ones can lose good deals.
"It's probably the difference between winning and losing in 80 percent of the
cases," said Ron Ross, vice president of Raytheon Information Solutions, the information technology government division of Raytheon Co.
In the changing federal procurement universe, choosing subcontractors is one constant need. Rules and policies concerning small businesses, competitive bidding, governmentwide contracts and other aspects may come, go and evolve, but integrators will always need teams.
"I don't care if you're a big kahuna like Lockheed Martin [Corp.] or Northrop Grumman [Corp.], there are very few times where you can take on something completely and win it single-handedly," said Ken Guest, senior vice president of business development and strategic planning for Anteon Corp.
During the past year, integrators have increased their focus on small businesses as subcontractors because of the Bush administration's push for more government contracts for small firms. That has forced integrators to do more outreach to small businesses for the first time, analysts said, such as organizing meet-and-greet events.
"In the past, they relied on agencies to host those events, but that was a hit-or-miss tactic," said Larry Allen, executive vice president of the Coalition for Government Procurement. "Some agencies did it well and others did not at all."
In general, however, the practice of choosing the right subcontractor has not drastically changed in the past decade. Even though Bush administration officials have emphasized awarding contracts to small firms, the federal government has had this goal for a long time.
Integrators evaluate several criteria to select subcontractors. Good partners have to fill holes in the integrator's capabilities, bringing to the table the right skills to fulfill the contract. They also need to know the government customer, preferably from experience.
"We develop long-term relationships with smaller companies so that when an opportunity crops up, you don't have to start a new mating dance," said Guest, whose company keeps a list of about 1,000 firms in its subcontractor database.
The database comes in handy when Anteon officials are interested in pursuing set-aside contracts. They are able to locate small businesses in the database that are appropriate for that particular work, Guest said.
It worked well with the award of the Army's Information Technology Enterprise Solutions contract. Anteon sought out QSS Group Inc., of Lanham, Md., to serve as the small-business prime contractor in October 2003. Anteon is a subcontractor on the $500 million project.
"Say we see something come from [the] Homeland Security [Department] that's an 8(a) set-aside," Guest said. "That database would help [us] contact the right company."
It's not all about hard numbers
Integrators will look at objective measures such as past performance, revenues,
profits and head count when making subcontracting decisions. But there are less
tangible measures that some prime contractors and subcontractors also believe are important.
A company that wants to be a subcontractor on a government program must sell its uniqueness to the integrator bidding as the prime contractor, according to Valerie Lyons, chief executive officer of Capgemini Government Solutions LLC, the government services arm of Capgemini, a consulting and outsourcing firm based in New York.
"My conversations with potential primes are about what value I have to bring and how that value converts to their win probability," Lyons said.
But expertise isn't enough, she said. She believes her firm is easy to work with and also excels in human resources, financial and supply chain management, and health information systems.
Lyons said that one of her firm's strengths is how it does business.
Ethics and values also matter, especially in light of business scandals at companies such as MCI — formerly WorldCom — and Enron Corp.
Track records matter
Subcontractors get pulled in early in the bidding process — usually as soon as the integrator makes the decision to respond to an agency's request for proposal. The prime contractor then relies heavily on them throughout the process. Integrators want subcontractors that can participate and contribute to the bidding process. Therefore, integrators give high marks to subcontractors who already work with the government customer or have worked for the agency in the recent past.
Government agencies have little input into the prime contractor's choice of a subcontractor. The only influence comes from the annual small-business goals that agencies attempt to meet. A procurement officer tends to favor bids that have a mix of small businesses proposing to do some of the work.
"The bottom line is [that] we choose our subcontractors," said Tom Oles, vice president for business development for Lockheed Martin Information Technology.
That doesn't mean that the wrong subcontractor isn't chosen from time to time. Integrators say they do a significant amount of analysis before selecting subcontractors, but occasionally a company will not meet obligations on the contract. It doesn't happen often because subcontractors are brought into a contract early in the process. Integrators can weed out problems before work begins.
When a firm is eliminated after the work has started, it becomes a sticky situation that isn't always easy to resolve. The integrators would start discussions with the subcontractor and then possibly would send the subcontractor a written complaint. The worst-case scenario is phasing out that subcontractor by giving them less work.
"It's death by starvation," Guest said. "We've never had a case where we threw someone off. Fortunately, most people realize how important it is."
Relationships are never easy
In government contracting, partners often are competitors. They may work peacefully together on one project while fighting tooth and nail against each other to win another.
Because of that, the prime contractor/
subcontractor relationship can be prickly. Companies set policies for nondisclosure of proprietary information, such as pricing schemes, which are some of the most guarded secrets among competitors, according to executives.
"You have to be careful about [subcontractors] understanding your pricing strategies," Ross said. "It's tough, but you work your way around it because that's the reality of the market."
However, integrators said their choice of subcontractors is not influenced by whether those companies are also their competitors.
"My goal is to put together the best set of teammates for a given opportunity," Oles said. "Whether we might be competing against those folks on an opportunity later is not a big factor in our teaming decision."
Anderson is a business writer in Arlington, Va. She can be reached at [email protected]