Subs complain prime contractors break their promises

Small professional services and IT companies often help prime contractors prepare contract bids but then never receive the expected benefits of business.

Nearly a third of 740 small firms said large prime contractors have “stiffed” them out of subcontracting opportunities even after they’ve been listed as a team member on a contract proposal, says an American Express OPEN survey. The survey, released June 19, asked about government subcontracting and teaming arrangements. This is the third of four summaries based on the second annual survey of small companies.

Small firms can help primes craft the proposal to meet an agency’s needs. In the proposal, the prime contractor lists its plans for subcontractors that can provide expertise and help with the work . Yet 29 percent of small businesses said it hasn’t panned out for them in the past.

Nearly 40 percent of small companies with at least a decade of procurement experience has been stiffed in the past. For companies with three years or less of experience, 17 percent said they’ve missed out on business and 31 percent of companies with between four and nine years of experience has dealt with it.

The survey found this likely to happen most into two industries. Forty percent of companies in the IT industry, such as software and data processing, and 63 percent of companies in the professional/scientific/technical services, such as computer system design, engineering, and research fields, said they’ve been frozen out of anticipated business.

And it happens to everyone—no matter the ownership. There is no difference in the likelihood of it occurring by either gender or ethnicity.

“So women- and minority-owned firms are no more likely to be left holding the short end of the procurement stick,” the survey reports.

All the while, there may be a justifiable reason for opting against a subcontract. The prime contractor may be able to handle the work itself, having the expertise and resources in-house. The prime contractor might be able to do it faster than going through a subcontractor. It may even get it done less expensively—a benefit for today's cash-strapped agencies, said Ray Bjorklund, vice president and chief knowledge officer at Deltek.

At the same time, the agency may not get all that it's expecting, if the small businesses on the lower tiers are overlooked, he said. Officials would have the perception that all the team members would play their part. The set-aside subcontracts can help in agencies’ efforts to support small, disadvantaged businesses.

“The government may not be getting what it bargained for,” Bjorklund said.

But responsibility rests on the agencies too, in that officials should be keeping an eye on subcontracts.

“Agencies have to monitor and track the prime contractor’s performance to make sure they adhere to their subcontracting plan. Although this may be a priority for agencies, their acquisition workforce is understaffed and may lack resources,” said Dona Storey, American Express OPEN advisor on procurement.

On a positive note in the survey, 22 percent of active small firm contractors said they have received other subcontracts after being recommended to a large prime contractor by another prime business partner they have worked with previously.

The survey found it more likely to happen to larger, more experienced small companies, as well as those in the information and professional/scientific/technical services industries.

However, companies are more likely to get stiffed on subcontracts than get referrals, the survey found.

American Express OPEN surveyed 740 small business owners in an online survey launched briefly in mid-August, then continued from Oct. 10, 2011 through Nov. 4, 2011.

Reader Comments

Fri, Jun 29, 2012

It'd be nice to know more about the circumstances under which these SB subs get "stiffed." I'm now a small business owner, but it wasn't so long ago when I was working as counsel and compliance director negotiating with SBs over rates, workshare and required levels of post-award participation in task order responses. Many had a sense of "woe is me" entitlement and arrogance that disqualified them from participation when work was being divvied up. Who wants to have to deal with that under contract? And trust me - if the Customer wanted that sub onsite, that sub would be onsite. Again - maybe some of those complaining didn't have a good feel for their necessity to the effort in the first place. Which would explain a lot, wouldn't it?

Mon, Jun 25, 2012 Herndon

In many cases the large/small subcontracting/teaming arrangement is entered into in good faith by the capture team. It is after award that the process breaks down in a lack of communicating sub contract/teaming opligations to the program team who is now head down trying to perform on cost and schedule. The government CO and the Prime CO should require a "all hands" kick off meeting at award and quarterly updates to the work flowing to the small team mate.

Fri, Jun 22, 2012 Huntsville, AL

Very well and accurately said A in VA! Caveat emptor!

Fri, Jun 22, 2012 Reston, Va

Large primes have been playing subcontracting games with small businesses forever and it's not likely to change unless the Contracting Officer requires the large primes to meet all of their subcontracting goals/plans. We all know this isn't going to occur unless the Contracting Officer implements substantial penalties to the large primes who do not achieve the Small Business goals/plans required in the contract. In addition, I believe the only way the governement will achieve its Small Business contracting targets is if the Contracting Officer's compensation is tied to meeting these objectives.

Fri, Jun 22, 2012 Anonymous Virginia

When it comes to subbing with a prime for the first time, subs need to either get the prime to pay for some of the proposal support or just don't do it. If the prime doesn't have any "skin" in the game, there will be ZERO motivation or organizational momentum to subcontract with out that prior contractual arrangement. Also, make sure you have an MOU in place such that it is understood ahead of time quantitatively what work share is going to be assigned to the sub. If you don't do this, you'll become someone's free proposal monkey. I can think of a thousand other things I'd rather do with my time than do free proposal work for a LM, RTN, NG, etc. ... I'd rather eat my own $hit.

Show All Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close
SEARCH
contracts DB

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Read More

  • Is SBA MIA on contractor fraud? Nick Wakeman

    Editor Nick Wakeman explores the puzzle of why SBA has been so silent on the latest contractor fraud scandal when it has been so quick to act in other cases. Read More

Webcasts

  • How Do You Support the Project Lifecycle?

    How do best-in-class project-based companies create and actively mature successful organizations? They find the right mix of people, processes and tools that enable them to effectively manage the project lifecycle. REGISTER for this webinar to hear how properly managing the cycle of capture, bid, accounting, execution, IPM and analysis will allow you to better manage your programs to stay on scope, schedule and budget. Learn More!

  • Sequestration, LPTA and the Top 100

    Join Washington Technology’s Editor-in-Chief Nick Wakeman as he analyzes the annual Top 100 list and reveals critical insights into how market trends have impacted its composition. You'll learn what movements of individual companies means and how the market overall is being impacted by the current budget environment, how the Top 100 rankings reflect the major trends in the market today and how the biggest companies in the market are adapting to today’s competitive environment. Learn More!