Adding Value through Subcontracting

Imagine a scenario in which a local Air Force Base needs a new runway. One of the tarmacs on base is worn and cracked and has not been maintained for many years. This is mostly because the runway has not been in use over the last ten years. However, the Pentagon feels it needs more planes in the air for better homeland security. The underused runway must be replaced and ready for use within a few months. A major contract is awarded to a local construction company to undertake the job for $8 million. This company specializes in concrete construction and has undertaken many highway projects within the state. However, electrical systems for lighting the runway at night are needed and the prime contractor has little knowledge of how this is to be done. The construction company hires on a sub-contractor for the installation of the electrical system that will light the new runway. Though many small businesses are too small for large scale contracts, it is common for prime contractors to sub-contract with small businesses that specialize in what a prime does not. The following will explain how a subcontract may be right for your small business.

Companies with federal contracts of $500,000 ($1,000,000 construction) or more must submit a subcontracting plan to its contracting agency. This plan outlines what percentage goals and dollar amounts the company intends to subcontract. Prime contractors intend to subcontract with small, small disadvantaged, small veteran owned, and women-owned small businesses. Prime contractors will also list what types of products or services they intend to subcontract. Besides the fact that many prime contractors often do not have all of the resources to complete an entire contract, subcontracting requirements disallow small businesses from being shut out of government contracts.

So how do prime contractors choose who to subcontract with? First of all, many post potential sub-contracting opportunities on the SBA SubNet page. This allows primes to easily find and evaluate the various subcontractors available. This is yet another great reason to get your small business registered with the SBA and the CCR. Primes also ask themselves a few questions about whether a given subcontractor is right for them.

These questions include:

• Will the subcontractor’s products or services fulfill the contract requirements?
• Can we reasonably negotiate prices with the subcontractor?
• What is the size and status of the subcontracting firm?
• Will the subcontracting firm help meet the requirements of our subcontracting plan?
• What is the quality of the subcontractor’s products or services?

Another program that may help you with subcontracts is the DOD Mentor Protégé. Mentor Protégé is reserved for small disadvantaged businesses such as HubZone and woman owned small businesses. This program is designed to give incentives to major DOD contractors for assisting disadvantaged small businesses. To learn more about the program visit www.acq.osd.mil/sadbu/publications or talk to your PTAC consultant about how you can find a mentor.

If you have a small business and offer a product or service in a specialized area, a subcontract may be perfect for you. A prime contract often is a large undertaking and may require more than you can handle all at once. A subcontract will give your small business the opportunity to grow your company as well as allow you to concentrate on what you do best. Subcontracting will also give you valuable knowledge on how government contracting works. This knowledge will provide a good base for when your company has the capacity for a prime contract.