Introduction
We all know that the government is the largest buyer of products and services in the world. The competition is fierce for prime contractors. As a result, there are companies that are building relationships with these prime contractors in hopes of receiving a subcontract.
Many small businesses have gotten into government contracting by utilizing this method. The goal of today’s episode is to introduce you to subcontracting. So let’s get on with it.
What is a Subcontractor?
A prime contractor is the one that received the contract from the government. A prime contractor is the point of contact on this contract and deals directly with the customer. Whereas, a subcontractor participates with the prime contractor to help complete the project for the client. As a subcontractor your contract is with the prime contractor. Simple enough! Consequently, depending on the contract a subcontractor plan may be required.
Subcontracting Plan
Federal contracts may require a subcontracting plan. When they do, the prime contractor must hire subcontractors. When is a subcontracting plan required? Well, that depends on the contract value and type of work being performed. Large prime contractors with contracts for goods and/or services other than construction, valued greater than $700,000 must establish subcontracting plans and goals for subcontracting with small businesses. For those prime contractors in the construction industry they will require subcontracting plans when the contract is greater than $1.5 Million. What does this mean to you? In short, it opens the doors for small businesses to become subcontractors.
Steps to Become a Subcontractor to a Prime Government Contractor?
Next, we are going to list the steps to streamline the process of becoming a subcontractor. In short, just follow these steps to get ready to become a subcontractor.
Step 1. Get Your Official Paperwork in Order
- To protect your personal assets from liability you must structure your entity correctly.
- DUNS Registration. This is your business credit score.
- Register in the System for Award Management (SAM.GOV). This registration is free, and it is essential for being paid by the government and government contractors.
After your paperwork is in order go to step 2.
Step 2. Research Agencies and Prime contractor directories for subcontracting needs.
Now that your paperwork is in order it is time to research prime contractors and find opportunities within our niche.
Many federal agencies have Subcontracting Opportunity Directories that you can review. The U.S. Small Business Administration has a database called SubNet which allows large prime contractors to post opportunities for small businesses to serve as subcontractors. I have known many small businesses that have used this system to find prime contractors.
General Services Administration (GSA) has a subcontracting directory for small businesses that are looking for subcontracting opportunities with prime contractors. The directory lists large business prime contractors that are required to have subcontracting plans and goals for subcontracting with small businesses.
The Department of Defense (DoD) has a similar directory for large prime contractors that small businesses can use to find subcontracting opportunities.
We have listed a few resources to help you get started finding subcontracting opportunities. Let us know if you find more. In the meantime use the websites above to get started.
As you can see, the government wants large prime contractors to use subcontractors. They have even gone out of their way to make it easy for you to find these opportunities. Don’t wait start using these listings now. After you have completed step 2 move on to step 3.
Step 3. Attend Outreach Events
Now that step 2 has been completed it is time to find outreach events to attend. Many prime contractors will hold outreach events, publish notice of sources sought, or solicitation for subcontract work. To start, you will need to create a Capability Statement to share with government contracting officers and prime government contractors. Don’t know what a Capability Statement is or how to write one? See our video here.
Where are these events held? These events are held all over the country. See the list below for events that you may want to attend if you cannot locate one close to you. To find more opportunities use Federal Business Opportunities and search special notices. Lots of time the government will list opportunities there.
- GCO Consulting Group is an SDVOSB that holds events in the Washington DC metro area.
- Solvability is a government contracting consulting firm which holds annual events in Florida GovCon Summit.
- AFCEA West connects military and government leaders with industry professionals.
- National 8(a) Association Small Business Conference brings together small, minority and 8(a) businesses and offers educational sessions and resources.
After you have completed this step go on to step 4.
Step 4. Research Prime Contractor Websites
Prime contractors know that they cannot win a government contract unless they have a pool of subcontractors that they can refer to. Therefore, most large prime contractors’ websites contain information for potential subcontractors. These websites will explain how to register with the large prime contractor and the types of small businesses they are looking for.
Below are a few prime contractor websites for you. Please note that these prime contractors are not listed in any order.
Top Prime Contractors (Not all listed)
- L3 Technologies – https://www.l3t.com/suppliers/small-business
- Boeing – http://www.boeingsuppliers.com/
- Honeywell – https://www.honeywell.com/contact-us/small-business
- Pratt & Whitney – https://www.pw.utc.com/company/doing-business-with-us
- Lockheed Martin Corporation – https://www.lockheedmartin.com/en-us/suppliers/information.htmlhttps://www.lockheedmartin.com/en-us/suppliers/information.html
- General Dynamics – https://www.gd.com/suppliers/become-supplier
- Raytheon – https://www.raytheon.com/suppliers
- Kiewit – https://www.kiewit.com/services/procurement/
- PCL Constructors Inc. – https://www.pcl.com/Partners-in-Building/Pages/Subcontractor-and-Supplier-Registration.aspx
We have only listed a small portion of prime contractors above. You will need to spend some time and find prime contractors within your geographical area. Once you have your registered on the website it would be a good idea to start building a relationship with the procurement person within the company. Call and setup a meeting to introduce yourself and discuss your capabilities with them. Give them a copy of your Capability Statement. Remember to follow up after the meeting and continually after the meeting. After you have been to some meetings it is time to go to the next step.
Step 5. Prepare your administrative and accounting requirements for being a subcontractor.
Before you start work as a subcontractor you will need to ensure that you are familiar with the Federal Acquisition Regulation (FAR), Defense Federal Acquisition Regulation (DFAR) and other acronyms that the government uses. Even though you are not the prime contractor you need to understand what is required of you.
- You will need to become familiar with the rules and regulations associated with government contracting. For example, FAR Subpart 19.7 The Small Business Subcontracting Program and DFARS Subpart 219.7 (Remember DFARS is the supplement to the FAR for DoD). Also, you will need to get up to speed on FAR Part 44 Subcontracting Policies and Procedures.
- Explore training opportunities with SBA, DoD or PTAC. SBA has online and in class training opportunities available. For online opportunities go here. For in class opportunities see your local SBA office.
- Have you established internal financial controls and are they in compliance with Generally Acceptable Accounting Practices (GAAP)? If you do not know please contact your accountant. If you don’t have an accountant, then you will need to get one. It is advisable to have a good accountant, and attorney that you can reach out too. Don’t think of these professionals as an expense but rather there are part of your team. The same goes for your bonding agent.
- Will your company need a loan if awarded a contract? Look at financing options BEFORE you need one. It is better to have funding available before you need it.
Once you have completed this section it is time to make sure you know your correct set-aside. After you finish the above steps move on.
What is Your Business Ownership Status?
What percentage of the business do you own? Is it greater than or equal to 51%? Why do I ask? Because in order to qualify for set-aside’s you will have to declare your ownership percentage. If you do not own at least 51% or more of a company than you cannot claim that status. Also certain certifications require that you be certified by SBA. For example, you cannot claim the 8(a) or HUBZone status unless SBA has issued that status to you.
Why does this matter in subcontracting? Because government agencies will define goals for their contractors for specific types of set-asides for certain certifications. The certifications include, but are not limited to 8(a) BD companies, HUBZone companies, Service-Disabled Veteran-Owned Small Business, and Woman-Owned Small Business.
In other articles we discussed each of these set-asides in detail. If you are not familiar with them check out our other articles. It is important to make sure that you claim the correct set-aside for your business. If you misrepresent yourself, the government can take action against you. Or worse, you could be suspended or debarred from government contracts.
Now that you have declared your set-aside status it is time to move on.
Do I need any documents as a Subcontractor? Do I need to have a license?
The prime contractor and the industry in which you are in will determine the documents. A license will be needed if you are seeking subcontract work that otherwise requires state or federal licensing. If you are not sure that your business requires a license check with your State’s Division of Occupational and Professional Licensing. In addition, to the documents mentioned in step 1. Other documentation you will need to consider creating include:
- A Capability Statement. This is a marketing document that will be required as a prime or subcontractor.
- Proof of General Liability Insurance Coverage. The amount required will be dependent on the industry. Your company may also be required to obtain bonding. This is industry specific. If you are in the construction industry you will need bonding. Why would bonding be required? Doesn’t the prime contractor take care of the bond? Your prime contractor may require that you bond your portion of the job. This is especially true if a large portion of the work to be performed is by one subcontractor.
- Proposal Documentation to submit to the Prime Contractor. For more information see FAR 15.404-3.
Small Business Financing
Because the government pays prime contractors after invoicing, it is necessary for subcontractors to have access to enough financing to cover the period between beginning the work and receiving the invoice payments. You could be required to demonstrate the availability of financing prior to being award a subcontract as part of showing the financial sustainability of your business. You can obtain a financial capability letter from a lender.
By the way, if you are having difficulty obtaining financing, consider using SBA’s 7a loan program. Contact your local SBA office or your lender for more information.
Conclusion
Becoming a subcontractor is a great way to get familiar with the government contracting. The information that we have gone over is a great way for you to get started as a subcontractor.
Please remember to subscribe to our podcast, and YouTube channels as we provide more information in future episodes.