Government Contracting: Anticipate every turn

For smaller or medium-sized businesses, winning a government contract offers the chance to lock in several years’ worth of steady and dependable revenue. In addition, once your company is established as a successful government contractor, it can bid on larger projects, enabling you to grow your business substantially. But to pivot from smaller to larger contracts, you may have to team up with other firms — a path that can be complex and littered with potential pitfalls. 

“Government contracting is a very niche business,” says Edward Spenceley, a senior executive who manages the government contracting team at Bank of America. "There’s a lot of navigation needed to meet the technical and compliance requirements of executing on a government contract, on top of the rigorous cybersecurity and accounting standards. Your company needs to demonstrate high-level expertise and reliability to find the right partners and satisfy government agencies.”

Perhaps the two key foundational elements for your success in working with the government are your relationships and your reputation. Crucial relationships should include lawyers, accountants and consultants who have experience guiding clients through the Federal Acquisition Regulation. Just as important is your reputation for delivering projects or services in the time frame laid out in the contract requirements, because your performance is constantly evaluated by the government agency involved. 

Companies engaged in government contracting may want to take advantage of some of the numerous programs that are designed to put smaller businesses on a more equal footing with larger, more experienced prime contractors.

In fact, when it comes to bidding on government contracts, your company may enjoy a major advantage based on its size, ownership structure or the owner’s socioeconomic status. Nearly a quarter of all dollars are reserved for small businesses,¹ and designations known as set-asides reserve certain contracts for veteran-owned companies, woman-owned companies, companies with owners who are economically disadvantaged and companies in historically underutilized business areas known as HUBZones.²

When a prime contractor, which works directly with the government and is responsible for the entire project, bids on a multibillion-dollar contract, the government may require it to include smaller subcontractors in its proposal. The Small Business Administration offers a mentor-protégé program that can connect applicants with experienced contractors who can help them navigate the ins and outs of bidding and the federal procurement program.³

“That tough-to-navigate zone between smaller and larger contracts is the point where businesses need the most help,” says Chris Patty, a regional government contracting specialist at Bank of America. “This is where teaming can be critical.” For instance, once a company performs successfully as a subcontractor, it may be positioned to compete as a prime contractor in the future. That’s why cooperating with other contractors, even ones that are competitors, can be key to growing your business. Going to industry trade shows and conferences to create and strengthen relationships can help you widen your contacts with both large and small contractors that may be looking for partners. And when you maintain good relations with other smaller contractors, you can take advantage of their existing customer relationships and set-aside statuses. 

Another important consideration is to make sure the contract you want is right for your business. If you’re bidding on work that would require 100 new employees with a net return of only 4%, you might be better off with a smaller contract that calls for 20 additional employees but offers a net return of 16%.

You also need to look at regulatory requirements. Government contracts have varying levels of cybersecurity requirements. All contracts are governed by the cybersecurity rules released in December 2023, and the most stringent of those can require more than 110 separate steps and third-party certification. That can add substantial upfront costs before you even make a bid.⁴

Depending on the type of contract, you may need to upgrade your accounting systems, processes and/or procedures to meet specific requirements, which may also lead you to incur considerable costs.

There is a temptation among smaller business contractors to grow their business beyond their field of expertise. It’s easy to automatically say yes when a government agency asks, “Can you also do this other work?” But that could lead to problems.

“It’s important to pick your niche carefully,” says Spenceley. “You have to be willing to say, ‘No, I can’t do that,’ because at the end of the day, your primary task is to do the work successfully.”

With a track record of successful performance and the advice of a team of qualified advisors, growing your government contracting business with one or more large deals is the logical next step. Ultimately, it’s your firm’s reputation and relationships that can steer you to the right opportunity. That may not always result in winning a contract bid, because there is still price and other factors being considered. But those relationships often prove fundamental in winning new business.

¹Congressional Research Service, “An Overview of Small Business Subcontracting: In Brief,” April 10, 2024.

²Small Business Administration, “HUBZone Programs,” April 4, 2024.

³Small Business Administration, “SBA Mentor-Protégé program,” April 15, 2024.

⁴Department of Defense, “Cybersecurity Maturity Model Certification Program Proposed Rule Published,” Dec. 26, 2023.