New Report Reveals Trends in Federal Contracting for Small Business

Despite, current procurement tracking methods at the federal level, it’s not easy to get a real picture of how small business fares within government contracting.  However, a new report, Trends in Federal Contracting for Small Businesses, published by American Express OPEN’s Victory in Procurement (VIP) program provides some unique and interesting insights.  For this study, 740 “active small business federal contractors” were polled during the months of October and November.  Here are a few key findings from the first of four publicly-released summary reports:

  • Small businesses spent more chasing federal contracts. Over the past year, the amount of time and money that active small business contractors have invested in seeking federal contracts averaged $103,827, an increase of 21 percent over previous year figures.
  • Small businesses bid less frequently on contracts. Even as the average investment has risen over the past year, bidding activity has declined by nearly half.  This includes both prime and subcontracting bidding activity. In addition, the average success rate for small business contractors (in both prime and subcontracting) has declined, indicating a more competitive environment.
  • Try, and try again. Active small business contractors reported they had to submit an average of 4.4 bids before they won their first prime federal contract. Two-thirds of active small business contractors have performed on more than one federal contract, and, on average, it took them just under a year to win their second contract.
  • Experience pays. Contractors with ten or more years experience have success rates of 53% on average.  This compares to contractors with three or less years experience who have success rates of 20% on average.

Overall, the study highlights the fact that government contracting is not an easy, short-term strategy for small business.  It takes commitment, work, and investment to succeed.  On the other hand, for small businesses who know what they’re doing and/or are willing to make the effort, it is also clear government contracting can be a smart, highly lucrative pursuit.

DHS Releases Blueprint for Cybersecurity

Department of Homeland Security

I know it’s geeky, but I rather enjoy reading through federal government strategic plans–particularly those related to technology or homeland security.  Makes me feel a little Jack Bower-like (I miss you man!) to see what’s going on in the minds of our leaders.  It also helps, from a business perspective, to know where the strategic areas of focus and opportunities lie within top target government agencies.

We have an opportunity to do this once again with the release of DHS’s Blueprint for a Secure Cyber Future:  The Cybersecurity Strategy for the Homeland Security Enterprise.  According to Janet Napolitano, DHS Secretary, “The framework aims to help better use existing capabilities and promote technological advances that make government, the private sector and the general public more resilient online.”

The document focuses on two core areas of DHS’s cyber mission: protecting critical information infrastructure, and strengthening the broader “cyber ecosystem.”

Protecting Critical Information Infrastructure

According to the plan, DHS will protect critical information infrastructure by reducing exposure to cyber risk, ensuring priority response and recovery, maintaining shared situational awareness and increasing resilience.

DHS looks to create the National Cybersecurity Protection System, develop incident reporting guidelines, issue alerts regarding significant threats, and run the National Cybersecurity and Communications Integration Center among other tactics.

Strengthening the Cyber Ecosystem

The other focus area relates to strengthening the cyber ecosystem. DHS says it will empower individuals and organizations to operate securely; make and use more trustworthy cyber protocols, products, services configurations and architectures; build collaborative communities; and establish transparent processes.

While the blueprint may not be as exciting as an episode of 24 (particularly the first few seasons), it may just provide you technology-oriented government contractors out there with some new ideas or at least some support for existing roadmaps

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Five Government Procurement Rules that Stifle Innovation

Government procurement is often no picnic.  If you’ve been involved in selling to government for any length of time, you know the myriad of rules, regulations and hoops you must jump through in order to successfully compete.  Of course, these rules are required to a degree to protect us, the American taxpayer and promote fair business practices.  Yet, many times these formalities have detrimental unintended consequences.  This is particularly true in the rapidly changing world of technology.

The linked article, Five Government Procurement Practices that Stifle Innovation, by Justine Brown in Public CIO magazine brings up some great points about how procurement rules can stifle technology (and what some agencies are doing to make things better).  It’s well worth a quick read.

 

Federal Contract Preferences for Companies that Hire Vets?

A federal task force has raised the idea of offering special privileges to government contractors with a certain percentage of employees who are veterans.

The new type of business would have privileges similar to those afforded to small businesses in Historically Underutilized Business Zones, or HUBZones (federally designated economically depressed areas). To be eligible for set-aside contracts, HUBZone small business must have 35 percent of its total workforce living in the zone (and agencies have annual goals for awarding them contracts).

The task force said the government could apply that same principle for companies whose total workforce is comprised of at least 35 percent or more of veterans, including guard and reserve members.

President Obama signed an executive order in 2010 to establish the task force with an intent to help veterans in the government marketplace. He also announced the new Interagency Task Force on Federal Contracting Opportunities for Small Businesses, which will take a broader look at small-business contracting.

 

Obama Administration Looks to Reduce Contractors’ Senior Executive Salary Reimbursements

According to Washington Technology, the Obama administration has proposed changing how the government sets limits on the reimbursement of salaries for senior executives of government contractors.  The current formula for reimbursement sets the cap using a survey of general commercial compensation, but the administration wants to tie the cap  to the salaries of senior federal officials which currently pays $200,000 a year.

In 2010, the Office of Federal Procurement Policy allowed reimbursements for a contractors’ top five executives to reach a total of $693,951. The Obama administration now is concerned that, based on surveys, reimbursements could reach $750,000 in 2011.

Congress will have to pass new legislation to make the change.

New Labor Rule Requires Winning Contractor to Offer Jobs to Incumbent Contractor’s Employees

Just snatch a new federal services contract away from a competitor?  A new Department of Labor rule says you will have to offer your competitor’s employees a job prior to hiring workers elsewhere.  According to an article in Washington Technology, Labor Department officials have released a new policy mandating that federal service contracts require winning contractors to offer positions to the previous contractor’s employees (whose jobs would end as a result of the new award).  Essentially, incumbent employees will have a right of first refusal for employment.

The thought behind the rule is such a policy would make the transition between contract awards smoother for the government.  However, comments to the ruling offer troubling questions such as:

  • What if the previous contractor lost because of poor performance in general?
  • What if the employee is not up to standard?  Does sufficient documentation exist to determine poor individual employee performance?
  • If I’m a losing contractor, do I really want my employees easily whisked away (taking my company secrets)?
  • How do winning contractors fulfill the cost and quality obligations?
In the article, Stan Soloway, president and CEO of the council, indicated the rule is inappropriate and even counterintuitive.
“While experience shows that companies often hire as many qualified incumbents as possible to avoid the costs of training new employees, this rule denies those companies, who have full responsibility for performance under the contract, their ability to select a workforce they believe is best suited to meeting the contract requirements,” Soloway said.

The official date of when the rule will take effect has not been released, but will be published in a subsequent notice once the starting date has been decided.

How Will Federal Budget Cuts Impact Government Contractors?

The new Budget Control Act of 2011 launches with almost a trillion dollars in spending cuts.  Where are the cuts and what impact will these have on contractors?

It turns out this is not an easy question to answer.  First, let’s examine what we know (see article by CNN’s Jeanne Sahadi for additional detail).  The legislation caps domestic and defense spending, which results in $917 billion in reductions over a ten-year timeframe.  Of these, $350 billion is taken from the defense budget.

The framework then calls for more deficit reduction (between $1.2 trillion and $1.5 trillion worth) to be determined by the end of this year and enacted over 10 years.  This second round of deficit reductions would be set forth by a special bipartisan joint committee of Congress. The committee has until Thanksgiving to come up with its proposals.

If Congress approves between $1.2 trillion and $1.5 trillion in cuts, the debt ceiling will be increased dollar for dollar.

If the committee deadlocks or comes up with less than $1.2 trillion in cuts (or if Congress votes down the committee’s proposals) the debt ceiling will be raised by $1.2 trillion.

What does not appear to be open for additional cuts are the following:

  • The wars in Iraq or Afghanistan or “similar activities”
  • “Entitlement” programs, (Medicare, Medicaid, and Social Security)
  • Debt payments

So back to the question of what impact the deficit reduction legislation will have.  Here are a few thoughts:

Contractors will feel the pinch of budget reductions in areas of discretionary spending and Defense.  There will simply not be as much money to go around and certain programs will see significant reductions or be eliminated altogether.  As defense resources are withdrawn from the Middle East, expenditures will be reduced.

Long-term contractor planning will become even more difficult. Tying of budget reductions to increases in the debt ceiling will add even more uncertainty and complexity to the process, making long-term contractor planning a challenge.  Every year will be even more of a battle as the stakes are now even higher.

States will feel the cuts particularly in areas of public safety and homeland security.  These areas already took a hit in the 2011 budget and will likely receive continued scrutiny/attention.

Smaller service-oriented businesses may find new opportunities.  While smaller businesses on the manufacturing side may find it difficult to achieve cost advantages due to lower economies of scale, smaller businesses on the services side may actually leverage a cost advantage due to lower overhead and lower labor costs.

IT spending is expected to actually increase across the federal government.  This is one bright spot and will be particularly true where clear cost savings or efficiencies can be illustrated through the adoption of technology.

While there is little doubt contractors will feel the effects of this latest budget wrangling, there will still be massive opportunity to provide valuable goods and services to the nation’s largest single customer.  Sure it’s going to be more difficult, but when was the last time a government buyer DIDN’T talk about funds being a problem?  When was the buying process NOT complex?  Things will settle in, and contractors who can illustrate real value will thrive.  Staying focused on building relationships and relieving pain WILL get results even in times of change.

Lorin Bristow

Government Selling Solutions (GSS) helps government sales teams reach their full potential through sales training, sales and marketing consulting and capture team participation.

www.govsellingsolutions.com