Tight budgets challenge prime-sub relationships

As we started looking at the preliminary results of our WT Insider Report on the prime-sub relationship from the subcontractor’s perspective, we realized that we needed to include the voice of the prime in some form.

I reached out to several companies and shared a draft of our report, and the conversations that followed led to the creation of our Primes React section in the final report.

It was a rare opportunity for me because I wasn’t asking about a specific contract win or acquisition or new business strategy; instead, we got to talk about how the business of government contracting works, and how the dynamic between prime contractors and subcontractors is evolving. I appreciate the candor of their insights.

One thing I learned is that the pace of today’s market and the pressure of tight budgets are the biggest challenges to forming a good relationship with subcontractors.

The big contracts usually aren’t a problem. As one executive said, “If it is a top 10 contract pursuit, we’re working on it three years out from the request for proposals, and we have our teammates two years out.”

All the executives I spoke to said that large procurements get senior management attention, and subcontractors benefit from that attention because the details of the relationships – things like work share, roles and responsibilities and pricing – are hammered out well in advance.

But when you get outside of the marquee projects, the attention isn’t the same. “I bet we only get it right 50 percent or 60 percent of the time,” an executive said.

When time frames get short, the attention to detail wanes. “Once the RFP comes out, your hair is on fire,” he said.

Large prime contractors also are very interested in strategic relationships that can last beyond a single contract, but that is something that seems to be getting tougher in today’s market.

There is a feeling that more subcontractors are jumping from prime to prime in an effort to win more work in the short-term. “We have more turnover from program to program,” an executive said.

Primes and subs need to be strategic. “You need to realize that you aren’t divvying up pieces of the pie, but attempting to bring capabilities together to go after the larger pie,” another executive said.

The expression “win-win” was used several times by the executives, and often that means that when a large prime brings your company on as a teammate, you should look to bring the larger company onto your team on a future project.

To a company, the executives expressed agreement with the findings of our report because the concerns expressed by the subcontractors in the report are often the same concerns these large companies have when they are subcontractors.

“Everyone wants an environment of trust, sharing information and honoring commitments. That’s how we think about it,” an executive said.

“You have to establish a relationship you believe in,” another executive said. “If you go into it feeling like the prime isn’t going to honor the teaming agreement, is going to cut you out or take away your work over time, you should think twice about entering into the relationship.”

But no one comes to “work and says, 'how am I going to screw my subcontractors today?' That doesn’t happen,” a third exec said.

Several times during my conversations with the executives, the talk turned to today’s tough market because of the increasing pace, competitiveness and pressure to meet margin goals. Layered on top of this is the pressure from government agencies for contractors to lower their prices.

“You have the same or more companies going after less work, so we don’t have the time to do the upfront work as well as we’d like,” said one exec.

Another was very blunt about the impact of pricing pressures – they get passed down to the subs.

And sadly, no one expects the pricing pressure to go away anytime soon, so that is one issue that will continue to challenge primes and subcontractors.

The conversations cemented our commitment to move forward with our second Insider Report, which will look at the relationship from the prime’s perspective. That report is under development, but look for more on it as the summer progresses.

I’m anxious to get your thoughts on the first report, so post your comments below, or send me an email and let me know what you think, and where we should focus going forward.