Why Aren't More Small Businesses Contracting with Government Agencies?

A couple of years ago, I had a conversation with an SBA Business Opportunity Specialist who was lamenting the absence of SBA 8(a) program applicants. At the time, she was seeing three to five businesses graduate the Small Business Set-Aside program for every new one applying. I did the math and realized most of the graduating 8(a)s enrolled during the Great Recession. By 2018 things were going well enough in the economy that perhaps small businesses felt that pursuing government work was not worth their time and energy.

Due to COVID-19, however, the economy is once again unsteady. Businesses are again looking to the federal government as a potential source of much-needed business, as they did during the great recession. Of course, the problem is that ramping up a public sector sales strategy during a crisis is not ideal. Government sales should not be something a business turns to as a last resort. Federal contracting is not a good fit for all businesses, but for those in which it is, using it to fortify client diversification efforts is sound logic. Which begs the question, “Why don’t more companies include government contracting in their sales mix?

Perceived Difficulty

The number one reason I hear small business owners tell me they’re not selling to the public sector is that it’s difficult. Public sector contracting has different rules than private sector sales, but public sector contracting can be easier once the initial learning curve passes. Public sector contracting has consistent rules and greater transparency, which make bidding more predictable. A proposal writer working on government RFPs can work off a set of requirements and get feedback from contracting officers if they don’t win. Proposals in the private sector often go into a black box. Feedback, if any is given, is typically along the lines of “We decided to go another way.”

Long sales cycles

Another reason small businesses eschew government contracting is that the sales cycles can be longer than in the private sector. It’s not uncommon to send a private sector proposal on a Friday and get an answer the following Monday. That typically does not happen in the public sector because of the checks and balances imposed on the proposal review process. The upside, however, is that government spending is more predictable. Most government agencies release projections of upcoming contracts, and SAM.gov allows vendors to search for opportunities across the federal government.

It’s stacked towards insiders

This excuse is partially true, but not for the reasons most people think. Program managers generally can’t award business to vendors they choose. They submit requests for needed services to their contracting officers, who award contracts based on established evaluation criteria. Contracting officers are sticklers when reviewing proposals for compliance to prevent awards from being challenged by losing bidders. Companies that have been submitting proposals longer are more aware of these compliance issues and thus submit winning proposals more frequently. Becoming an “insider” is a matter of persistence and competence.

Government Contracts Have Too Many Bureaucratic Requirements

Some government contracts are tightly regulated and require extra steps to ensure regulations are being followed. Fortunately, the types of contracts that are set aside for small businesses are often much easier to fulfill. Most larger contracts allow for a contract manager’s salary to be included in the costs. Hiring an experienced contract manager can guide a new vendor through the compliance process and ensure compliance is maintained. Another option is to start public sector contracting as a vendor (subcontractor) to larger firms who can handle compliance. The SBA makes this easy with Mentor-Protégé programs and often require large vendors to hire smaller firms as subcontractors.

Conclusion

Waiting until business dries up before looking for new clients is never a good strategy. Having a diverse mix of public and private sector clients can add stability to a company’s revenue stream, especially during economic slowdowns, when the government often increases spending to stimulate growth. Government contracting requires more steps than selling to the private sector, but the benefits can considerably outweigh the extra effort.