So, you'd like to start a small business and get some government contracts, and enjoy a steady business knowing that your customer will never go bankrupt, because they can always print more money or borrow. Also the government has the taxpayer to back them up if they run out. For many small businesses this sounds like quite a good idea. But I'd like you to stop and reconsider this, over the years, and having done lots of business with the government, I have never found them to be our best customer.
Indeed, in some cases I found the government agencies which we did business with to be some of our worst customers, slowest to pay, and biggest pains in the butt. It is difficult to get government contracts, and they generally wish to have the lowest price, and in some cases I imagine it's very similar to doing business with Sears or Wal-Mart. Before you think you are going to get rich doing government contracting, there's things I like you to consider.
In fact, there is a very good article that you might wish to look up by Emily Maltby, which was in the Wall Street Journal on Tuesday, April 20, 2010. It was in the small business section and the title was; "Government Contracts Can Be a Long Haul-Big Investments in Time and Capital Make Uncle Sam a Dubious Option for Firms on the Break; 'It's a Different World'" - and in this article were several small businesses, which had been stretched for cash during the recession and yet their business plan called for getting more government contracts.
Their stories and woes will shock you. Often government agencies will wish to buy services or products, and then they are forced to cut their budget without notice, and the first thing they do is look at all their contracts and figure out which ones they contact, and often put a moratorium on new contracts. If you are a small business in a government contractor sector, you could find yourself in a world of hurt; namely, no new business coming in.
This at a time when your other customers are paying you slow, and even many government agencies are paying 180 days out, causing your cash flow to be virtually nonexistent and forcing you to lay off your workforce. This is a small business person's dilemma, and during this last recession when credit was tight small businesses do not have the ability to go borrow money against their future cash flow unless they wish to pay super high interest rates through factoring.
This last global financial crisis hit the banking sector extremely hard and therefore hit the small business community, or Main Street even worse. Many large corporations were able to sell corporate bonds, but small businesses cannot finance that way, and even the investment banks, which often lend to the largest of the small businesses, were basically doing no deals at all.
This, on top of the fact that it can take an extremely long time and a lot of energy to get a government contracts in the first place. First you must bid on the contract, negotiate everything, sign the contract, deliver products and services, cover all the cash flow, and labor, and then wait to get paid. By that time many small businesses will go broke. The United States government may be the lender of last resort for Wall Street and the banking sector, but it shouldn't be the customer of last resort for your small business. Please consider all this.
Federal Government contracting is an often scary and complex environment to many small businesses. Without the proper assistance of experts in the field it can also be dangerous to a small companies fiscal prosperity, but the risk is worth the rewards!!!!
Less than 5% of the businesses in the United States do business with the U.S. Government. The 1195 Federal budget was $1,518.3 BILLION DOLLARS! Approximately $1 billion in new opportunities in the services sector of Government contracting were available to bid on by private business each day. The services range from Food Services and Janitorial projects to complex space flight systems development.
Companies are winning and are awarded this amount in new contracts daily. Where is our part as a small business concern in this multi-billion dollar marketplace?
The Government uses two techniques to procure products and services which have values over $25,000.00 per year, Invitation for Bids (IFB's) and Request for Proposals (RFP's).
The IFB is an advertised procurement in which contract award is based on upon award to the lowest priced responsible bidder. The bid must offer performance and delivery at least equal to the minimum standards established by the IFB.
The RFP will often require a full Scope of Work (SOW) response (how the project will be performed, on what schedule, and by whom), the key personnel who will be assigned to the project, as well as a full company qualifications package.
The way in which the Government procures these contracts are changing rapidly. President Bill Clinton's budget message is clear and target two principle areas:
1. Keep deficits on a downward path.
2. Continue to invest in long-term economic growth, in fighting crime, and in the skills of our children and workers.
The trends in Federal Contracting that have an impact on the small business sector are:
1. Procurement Reform - Streamlining Federal procurement was a specific target of Vice President Gore's National Performance Review Report Issued in September 1995, focused on creating a Government that works better and costs less. The report made nearly 400 recommendations for streamlining the Federal Government while improving the quality of service to the nation's citizens. This has ignited procurement reform legislation that will re-shape the Federal procurement process. For example, the expected changes in the current Senate Procurement Bill (S. 1587) include no CBD notices for contracts less than $100,00 if electronic commerce (Bulletin Boards) exists, small business provisions aimed at encouraging bids by small disadvantaged business Government wide and streamlined procedures that will take less than a month to complete.
2. National Performance Review (NPR) - Impact on Information Technology - Based on the market research firm Federal Sources., headquartered in the Washington, D.C. area, the NRP will generate $10-$20 billion in new business opportunities between how to win government contracts 1994-1999. The outsourcing its support services and procuring information technology systems to increase the productivity and effectiveness of the federal workforce.
3. Health Care Reform - Based on the Clinton Administration's current plan, a new health care plan will be enacted this year. Although there are still issues to work out, market research firms are forecasting significant opportunities to result from this reform initiatives include imaging, data entry technologies, ID cards/smart cards, multimedia and business process re-engineering. This will open up unlimited opportunities for small business concerns nationwide.
4. Proposal Quality - A Washington D.C. technology publication recently issued a contractor report on "Winning Proposals Win Bids," underscoring the link the government is acknowledging between the quality of the proposal and the quality of work the contractor will perform under contract. IN a recent RFP, in section M "Selection Criteria", the following statement was made "The offerors ability to follow the proposal instructions set forth in the solicitation will also be considered to be an indication of the offeror's ability to follow instructions should they be awarded a contract as a result of this solicitation.
5. Smaller, Shorter Duration Technology Equipment Buys - According to the Government's internal policy document the period of performance of Indefinite Delivery/Indefinite Quantity (IDIQ) hardware buys has been reduced significantly from five years to two and the size of these contracts has also been significantly reduced. This will result in more opportunities, more solicitations and more potential contract opportunities as these become within reach of small to medium-sized businesses.
The time to begin to get involved in Federal Government contracting is now. Companies currently involved, and who are successful in, Federal Government contracting started out with smaller contracts and worked their way into larger and larger contract awards.
Much of the new Source Selection Board criteria is based upon past performance, not only in Federal Government contracting, but in commercial contracting as well. The use of our current contracts as references is essential to a successful proposal to Government agencies.
The helpful hint for this month is to call your major clients and have them sign recommendation letters for your company.
In summary, Government contracting allows many businesses to have a bevy of profitable, long term contracts (normally 3-5 years) in your corporate receivables listing. This allows for stability and volume increases. Begin to prepare your company today for long term growth in the expanding Federal Government marketplace.