Government Rules Assure Sub-Opportunities

One of the government requirements that primes must meet in order to be awarded a federal contract really works to generate a significant market for small business subcontractors.

Major prime contractors and subcontractors receiving contracts valued over $500,000 ($1 million for construction) are required by federal regulations to develop plans and goals for subcontracting with small businesses, small disadvantaged businesses, women-owned small businesses, Historically Underutilized Business Zone (HUBZone) small businesses, and service-disabled veteran-owned small businesses. Under the law, if a prime contractor selected by the government fails to negotiate an acceptable subcontracting plan addressing all of these groups, it will not be awarded the contract.

It is easy to see why this requirement alone generates a significant and on-going subcontracting opportunity market. It is also easy to see why primes are always looking for "good" small business subcontractors. They need you in order to be able to do business with the government.

Note that if a prime has a federal contract that requires it to develop a subcontract plan and goals, only small disadvantaged (i.e., small disadvantaged owned and 8(a)) and HUBZone businesses that are officially certified at the federal level can be counted toward meeting plan and goal requirements. Currently, federal certification is not required for small businesses, women-owned small businesses, or veteran- or disabled veteran-owned small businesses; self-declaration is sufficient.

Work Smart Since certification is required before a prime can count a small disadvantaged or HUBZone subcontractor toward meeting its subcontracting plan requirements, it is to your benefit to have your certification available when you meet with the prime contractor or other company representative for the first time. Being able to prove that you are officially certified could actually tip the scales in your favor over another sub that might still be in the process.

Another reason primes need good subcontractors is that most prime contracts are so big that the primes cannot do everything in-house, and they have needs that only small businesses can fulfill. Because of the size of the contracts, the economic situation, and the fact that one company is buying out another company that's buying out another company, and so on and so on, many of the big primes can't manufacture the end product like they used to. Instead they just get the parts from other sources and then become the assembler for the product. All the manufacturing expertise that was originally in the company that did all the work is often dissipated, so it now has to farm that out to subcontractors.

So, if you can make a prime's life easier by helping it do its job well and fulfill on its government contract efficiently, on time, and with quality products/services, you have a great chance of creating a long, rewarding relationship.

Primes Depend on Subs

• AlliedSignal, consistently among the top prime contractors, depends on materials and components from 7,500 to 10,000 suppliers who accounted for 60 percent of its defense contract costs at one time.
• Sixty percent of the dollar value of Pratt & Whitney's military aircraft engines goes to suppliers.
• To build the inertial guidance system for the MX missile, Northrop relied on more than 500 subcontractors to make 19,000 parts.
• At Lockheed/Fort Worth, subcontracts consumed 75 percent of the cost of making the F-16 aircraft.