WALKING TALL: The Small Business Issue

In 1998, Robert Hisel Jr. sold all his commercial work -- 99 percent of his IT company -- to another firm. He used the proceeds from the sale to focus wholly on the government market.

"My friends who worked at high-flying dot-coms like MicroStrategy were asking me, 'What the hell are you doing getting into this government stuff?' Today, they are asking me, 'How the hell do you get into this government stuff?' " said Hisel, president and chief executive officer of Preferred Systems Solutions Inc. of Fairfax, Va.

The government market has treated Hisel well. His company, No. 3 on Washington Technology's Fast 50 list, had 148 percent compound annual revenue growth over the last five years. PSS employs 155 people and will have about $18 million in revenue this year. The company partners with some of the largest federal systems integrators, including Electronic Data Systems Corp., Northrop Grumman Corp., Perot Systems Corp. and Titan Corp.

"We continue to grow because our reputation is strong. People who leave one organization and go to another will remember us and say, 'You should bring them on the team, because they are responsive and good to work with,' " Hisel said.

Hisel's success comes at a time when many small businesses are struggling for a toehold in the federal market. Small firms benefit from opportunities specifically designed for them, including numerous set-aside contracts. [IMGCAP(1)]But they also have difficulty navigating a complex procurement process that rewards established players more often than new ones. And federal agencies continue to combine or "bundle" many IT projects into single contracts, making it increasingly difficult for small business to compete for this work.

Despite these challenges, however, the special perks for small businesses still make the federal market a prime place to be, industry experts said.

"With all the set-aside programs, you have the buyer working to buy from you. You can't beat that," said Ashlea Higgs, senior analyst for Input Inc., a Reston, Va., IT market research firm.

One positive trend for small businesses is that agencies are increasing the value and scope of set-aside contracts. In July, InDyne Inc. of McLean, Va., won one of the largest IT contracts ever to go to a small business. The Air Force set-aside contract, worth $430 million over eight years, is for operations, maintenance and support on various systems, including communications, weather, early warning and surveillance. Northrop Grumman IT is teamed with InDyne.

In addition, small firms receive business development assistance from the Small Business Ad-ministration and agency small-business offices.

"Any time we need assistance, they have been there for us," T. Fitz Johnson said of his SBA business opportunity specialist in Atlanta.

"There is a lot of work out there. We always wish there was more, but we get our fair share," said Johnson, executive vice president and chief operating officer of Eagle Group International Inc., No. 10 on Washington Technology's list of top IT firms participating in the SBA's 8(a) business development program.

Given these advantages, small businesses should be thriving in today's government market, Hisel said. Agencies are starting to comply with directives to unbundle contracts and are monitoring whether prime contractors are meeting goals to give small businesses a mandatory percentage of contracts, he said.

"There are lot of government agencies now focused on small business incentives and mandates," Hisel said.

 

THRIVING IN A BUNDLED WORLD

While small businesses benefit from set-aside contracts, in recent years they have been hurt by agencies bundling IT requirements into broad contracts worth hundreds of millions, or even billions, of dollars. This prevents all but the largest systems integrators from bidding.

One way successful small companies are adapting to contract bundling is by specializing, fulfilling key requirements as subcontractors. Case in point: Guidance Software Inc., a maker of computer forensic software and No. 5 on the Fast 50 list.

Large companies "see we have an important and compelling solution, and that there is a strong need for it. There is a tremendous amount of further exposure we see in the federal market," said John Patzakis, president and chief executive officer of the Pasadena, Calif., company. Patzakis plans to double his 150-person staff over the next 18 months.

Jim Cheng also has fared well in the federal IT marketplace. His company, Computer & Hi-tech Management Inc., is No. 4 on Washington Technology's list of top 8(a) firms. He said growing small businesses will succeed by pursuing jobs that escape the interest or attention of the largest companies. He doesn't see much unbundling, except as a token effort.

"The best we can do is find tasks that are under the radar screen for the largest companies," said Cheng, president and CEO. CHM of Virginia Beach, Va., employs about 600 people and last year had $78 million in revenue. Cheng plans to strengthen his company's capabilities by acquiring at least one company this year.

Government officials said contracting officers are paying more attention to bundling, however.

"If a customer comes to us and says we were doing help-desk support but now we want to do whole operations support, that would raise a red flag, and we would see if there is bundling going on," said Tina Burnette, a Commerce Department program manager.

Linda Williams, SBA's associate administrator for government contracting, said final rules for unbundling contracts, where possible, should be published before the end of the year. She said the agency is working on guidance that will help procurement officials determine when a prime contractor has made a good-faith effort to meet its small-business subcontracting goals.

Sometimes small businesses don't get the subcontracting work promised to them by a larger prime contractor. Roger Mody advised small business owners to insist on guaranteed percentages of the work when negotiating teaming agreements. Mody built his company, Signal Corp., from a small, 8(a) firm to a large company that Veridian Corp. bought last year for $227 million.

"We would expend our bid and proposal money, put people at the site of the large company, help them write proposals and, in many cases, we were critical to their success. But after the award, we had to struggle to get the work we were promised," Mody said.

Mody's advice to small businesses is this: "In teaming with large companies, detailing your expectations up front before expending any bid and proposal dollars is key to capturing that work upon award. If a large company isn't willing to document the work they expect to give you, walk away."

CAPITALIZING ON GWACS

Another avenue for small businesses trying to penetrate the government market is winning a place on governmentwide acquisition contracts that are set aside for small businesses.

A new GWAC that garnered significant interest is the second-generation FAST2 vehicle managed by the General Services Administration. FAST2, open only to 8(a) companies, includes services such as programming, systems design, facilities management, data processing and telecommunications. The contract has a ceiling of $15 billion over seven years.

A new feature of FAST2 will allow companies to be added to the vehicle as others grow too large and must graduate. Bids for FAST2 will be accepted until Sept. 17.

FAST2 is an offshoot of the former Federal Acquisition Services for Technology program of GSA's Federal Technology Service. More than 11,500 orders, worth $1.6 billion, were awarded to 8(a) firms since contracts under FAST were awarded in 1997, according to GSA. Those contracts will expire Oct. 31, 2004.

But no new firms have been added since the contracts were awarded, and some firms had to leave the vehicle because they got too large, said Mary Parks, director of GSA's small business governmentwide acquisition center in Kansas City, Mo.

"We haven't been able to replenish that contractor pool," Parks said. With FAST2, "we are hoping to give 8(a)s a lot more opportunities with federal purchasing."

Another hot GWAC opportunity is the Commerce Information Technology Services Next Generation contract, a second-generation, multiple-award contract for small businesses that is run by the Commerce Department. Representatives from about 600 firms attended agency-run discussions about the contract, Burnette said.

Under the task-order contract, federal agencies can buy IT solutions from small businesses, including disadvantaged, 8(a), women-owned, veteran-owned, service-disabled veteran-owned and HUBZone companies. Companies that win spots on set-aside GWACs don't have to compete head to head with the largest companies, and most tasks aren't huge.

Cheng said the first COMMITS helped establish his company at Commerce. Under a COMMITS task order, for instance, Computer & Hi-tech Management staff brought voice over IP technology to the department's headquarters.

"That really got us in the door and gave us a track record in voice over IP, a new technology. We established new relationships with suppliers and vendors, and took in existing small businesses we knew would do well [as subcontractors]," Cheng said. "We're going to try to get back on that bandwagon with NexGen."

Although firms such as Computer & Hi-tech Management are faring well, Cheng and other executives said small businesses face a tough government market.

Many agencies are paying closer attention to their small-business contracting goals by increasing the size of set-aside contracts and unbundling some others, but government statistics show small businesses are struggling to maintain their share of federal contracting dollars.

From fiscal 2001 to fiscal 2002, when federal procurement dollars rose 7 percent from about $220 billion to $235.4 billion, the number of contracting actions that went to small businesses dropped 14 percent, according to a June report published by Democrats on the House Small Business Committee.

New entrants will find it particularly hard to succeed in the government IT market, said SBA's Linda Williams.

"It is tough," she said. "With long-term contracting in the IT arena, it is difficult for emerging businesses. Those companies that are already in the door are doing OK. If you are new, you have a tough time." *
Advanced Cyberinfrastructure Program

Agency: National Science Foundation

Value: $5.1 billion

Status: RFP expected in June 2004.

Purpose: NSF needs an upgraded computing infrastructure to support its research and engineering activities. The contractor will supply hardware and software that builds on the existing Partnership for Advanced Computational Infrastructure. Many vendors, including small businesses, can participate, as it requires the integration of systems, applications and data.

Command, Control, Communications, Computer, Intelligence, Information Technology, Surveillance, and Reconnaissance Engineering and Technical Support Contract

Agency: Air Force Space Command

Value: $800 million

Status: RFP released Aug. 11.

Purpose: The Air Force needs a small business to provide integration, engineering, materials, installation, testing, operations and maintenance for C4I2TSR systems and requirements.


Commerce Information Technology Solutions Next Generation

Agency: Commerce Department

Value: $8 billion

Status: RFP released Aug. 12.

Purpose: The Commerce Department will award governmentwide acquisition contracts for IT services. This opportunity is set aside for small businesses. New small businesses can be added during the life of the program.


Computer and Telecommunication Services

Agency: Space and Naval Warfare Systems Center

Value: $45 million

Status: RFP expected in September.

Purpose: The Navy needs an 8(a) small business to supply computer and telecommunications support services for the center, located in Charleston, S.C.

Data Center Facilities Management

Agency: Secret Service

Value: $32 million

Status: RFP expected in April 2004.

Purpose: The Secret Service needs an 8(a) small business to provide facility management services for its primary and alternate enterprise computer facilities. The work includes operation and management of an automated data processing mainframe and open-system enterprise hardware and software, preventive maintenance and acquisition and implementation of upgrades.


FAST2

Agency: General Services Administration

Value: $15 billion

Status: RFP released Aug. 8.

Purpose: GSA's Federal Supply Service needs 8(a) small businesses to provide IT solutions under a governmentwide acquisition contract. FAST2 is an offshoot of the former Federal Acquisition Services for Technology program of GSA's Federal Technology Service. Required services include programming, systems design, facilities management, data processing and telecommunications. New small businesses can be added during the life of the program.

Groundbreaker II

Agency: National Security Agency

Value: $2 billion

Status: RFP expected in October.

Purpose: NSA needs IT infrastructure support at sites in the United States and overseas. The contractor will provide support with distributed computing, telephony, networking, data centers, support applications, enterprise management and security management. Opportunities for small businesses include integration with commercial and government off-the-shelf products and security management.


Information Technology Support Procurement III

Agency: Federal Bureau of Investigation

Value: $125 million

Status: RFP is expected in January 2004.

Purpose: The FBI needs small businesses to provide IT support services, including personnel and facilities needed to design, develop, maintain and enhance automated systems on mainframes, minicomputers, servers and microcomputers.


U.S.-STRATCOM IT Services

Agency: Air Combat Command

Value: $700 million

Status: RFP expected in September.

Purpose: The Air Combat Command needs IT infrastructure support services for the U.S. Strategic Command. Requirements include operations and maintenance, logistics, program management, systems engineering and IT security. Small businesses will have opportunities to provide project and life-cycle cost analysis services and configuration of commercial software.


Spirit -- Security Planning and Integrated Resources for Information Technology

Agency: Department of Homeland Security

Value: $10 billion

Status: RFP expected in late September.

Purpose: The department needs a range of IT service solutions in information management analysis and planning, information systems engineering and design, information systems operations and management and information systems security. Full-and-open and set-aside opportunities are included.

Source: INPUT Inc.
Changes to the Commerce Information Technology Services Next Generation contract, a multiple-award vehicle for small businesses run by the Commerce Department, should provide fresh opportunities for small businesses, industry executives said.

The agency made the following changes in the governmentwide contract:

• Raised the ceiling to $8 billion over 10 years, up from $1.5 billion over five years.



• Established a three-tier structure based on company size. The smallest small businesses will compete for the smallest tasks; the largest will compete for the largest tasks.



• Let new companies onto the vehicle as others graduate from the highest tier.
  


• Added a new size standard -- 1,500 employees -- allowing some of the largest small businesses to participate.

The journey to success in the federal marketplace is a marathon, not a sprint, said Tom Asefi, president of Global Analytic Information Technology Services Inc. The Springfield, Va., company tops the Washington Technology Fast 50 list with 171 percent annual growth in its government revenue over the last five years.

The company's success reflects years of preparation, Asefi said. It took several years to build the firm's infrastructure, including stable finances and what Asefi called a top-notch human resources department. It also took several years to fully understand the government procurement process and how to prepare bids that fulfilled all the clients' requirements, he said.

Asefi learned by studying how other companies did business.

"In the first two or three years, we met with companies to understand how they were approaching business and clients. We talked to folks who were extremely successful, who had taken themselves to the next level," he said.
[IMGCAP(1)]Like long-distance runners preparing for a race, IT executives prepare for new business opportunities months or years in advance. Asefi said he spends eight to 14 months marketing GAITS in advance of a new opportunity. First, his employees talk with agency employees to learn their requirements; then they sell their capabilities to the agency.

"You've got to prove yourself to the agency's small-business office, and then the program office," Asefi said. "They are not going to hand over something on a platter. Small businesses need to put together some white papers, prove their cases and show the government how [it] can benefit by providing an opportunity to a small business. If you put a phenomenal case together, the key is to go out there and do the marketing."

None of this is easy, contractors said. Like Asefi, many successful small-business owners have looked to larger, more established companies for advice on getting through to their targeted government customers. They must also market themselves to those larger companies that are potential teaming partners, and do it well in advance of an agency request for proposal.

Their sales pitches must include more than their small-business status, said Todd Stottlemyer, chief executive officer of ITS Services Inc., a small business in Springfield that graduated from the 8(a) program in January.

"It's important not just to show up and say, 'I am a small business.' It's important to demonstrate you can bring significant value to the team, something that is going to help win and execute the contract," he said. "Do you do something better than your competition? Do you have strong relationships with a particular customer? Do the people leading the company understand the customer requirements and mission, and meet or exceed the contract requirements?"

Demonstrating value to a team is how Reliable Integration Services Inc. won a spot on the Electronic Data Systems' team that was awarded a 10-year, $860 million contract from the Department of Housing and Urban Development last month. The team will develop a nationwide IT infrastructure and telecommunications service. Reliable employs about 50 people and has revenue of less than $10 million a year.

"I marketed to HUD to let them know what our capabilities were and find out what they were looking for, and then proved to EDS that bringing us on would give them a stronger team. We rolled up our sleeves and helped them write the proposal," said Valerie Perlowitz, president and chief executive officer of the Vienna, Va., company. The process took three years, from marketing to contract award.

"The biggest problem most small companies have," she said, "is that they expect the large guys have an obligation to give them work." Their message, Perlowitz said, is, " 'We're a small business and you should work with us.' "

But it doesn't work that way. If you take a shortcut, you won't win the race, executives said.

A woman who recently started a small business contacted Perlowitz about getting work on a Reliable contract. Her approach would have been more successful if she'd sold her capabilities and demonstrated specific knowledge of the contract requirements, Perlowitz said. Instead, she said she noticed that Reliable needed a recruiter and IT services, and that her company could do those things.

"If there is an opportunity, we will consider her, but I'm more inclined to go to somebody else, somebody who has done their homework. I'm not inclined to talk with somebody who says, 'These are my capabilities. Where can I help you?' " Perlowitz said.

And finally, executives said they must know when they are not strong enough to finish the race.

"We might spend a year or a year and a half tracking an opportunity and cultivating relationships. Sometimes, after six or seven months, we think we are not the right company, and we pass," said Rodney Hunt, president and CEO of RS Information Systems Inc. in McLean, Va. The company is No. 15 on the Fast 50 list.

Hunt, whose company graduated from the 8(a) program in January, advised small IT firms: "Stay in your core competencies. Understand your limitations. Be diligent in your marketing, and get as much due diligence as possible on the opportunity before expending bid and proposal dollars. Don't go after everything." *