Partnering the Davids and Goliaths of Infotech
Small companies are finding that pairing with the big guys gives them a valuable leg up
It is no secret that partnering inside the government's infotech marketplace has become a critical part of most small businesses' federal sales strategies. Whether it means participating in a routine subcontracting relationship or joining other teaming partners on large-scale, multiyear procurements, small businesses must become adept at partnering with other companies to grow and survive.
For 8(a) firms in particular, the current business climate is making partnerships an even greater necessity than ever before. While 8(a)s have had the option of using sole source contracts to grow their businesses, the growing value of partnerships are requiring certain 8(a)s to rethink their overall business strategies. The expanded use of teaming partnerships on large-scale, indefinite-delivery, indefinite-quantity procurements, for example, is a development that is motivating many 8(a) companies to actively seek out more of such partnering arrangements with large firms, according to 8(a) business owners.
Several 8(a) company owners and 8(a) program advocates report that the anti-affirmative action mood in the current Congress, as well as U.S. Supreme Court decisions on affirmative action, have led to a drop by federal agencies in using the 8(a) program. "These factors have had a chilling effect on the 8(a) program," said Weldon Latham, a senior partner at the Washington-based law firm Shaw, Pittman, Potts and Trowbridge, an 8(a) advocate. Latham added that new procurement rules are making it tougher for young 8(a) companies to win contract awards because past performance is weighed more heavily now than by previous rules.
Lynn Bateman, managing editor of the Alexandria, Va.-based Government Contract Advisor publication, said small businesses, including 8(a)s, are facing a tougher environment overall in the government information technology marketplace largely because of acquisition reform changes. Bateman said, for example, there are fewer channels available to small businesses to seek recourse when large business partners fail to uphold their business arrangements with smaller firms. "The little guys have to look out for themselves more," Bateman said.
The popularity of General Services Administration supply schedules among government infotech buyers has led to a reduction of sole-source awards to 8(a) companies, according to several government analysts and 8(a) company owners. This development has led 8(a) companies to aggressively pursue opportunities with large, non-8(a) companies that are winning prime contractor slots in massive, multibillion-dollar, IDIQ awards, such as DEIS II (Defense Enterprise Information System) and the U.S. Department of Transportation's Information Technology Omnibus Procurement.
Marcus Price, president and CEO of Dynamix Corp., Largo, Md., was part of a team led by Northrop Grumman, Los Angeles, that won the rights in late August to participate in the five-year, $1 billion Chief Information Officer Solutions and Partners program, a National Institutes of Health information technology procurement. Price, whose 8(a)-certified company was founded in 1987, said the CIOSP program is the first large-scale, IDIQ program in which his company is participating. He credits his participation in the 8(a) program for providing Dynamix the necessary experience to qualify for the Northrop Grumman team. "In some ways, participating in this contract will give us more flexibility than we have had in the 8(a) program," Price said. Dynamix was listed as one of Washington Technology's 50 fastest growing companies in 1995.
Price explained that participating in large-scale, IDIQ contract awards often requires a company to respond to jobs in a matter of days rather than going through the 8(a) procurement process, which might take 30 to 90 days to land a contract. Price agrees that the procurement environment has grown tougher for 8(a) companies, but said companies can win lucrative opportunities if they are prepared.
Bruce Johnson, vice president of sales and marketing at IntelliSys Technology Corp., Fairfax, Va., said partnerships "have been the key ingredient in our success" over the past several years. IntelliSys experienced a 1,196 percent revenue growth between 1991 and 1995 largely on the strength of its partnerships with other companies, earning it the 21st spot on Washington Technology 's 1995 Fast 50 ranking, according to Johnson. The systems integration and network engineering company had nearly $15.75 million in total revenue in 1995 and is projected to generate $22 million in sales in 1996, Johnson added.
Johnson said IntelliSys Technology, which graduated from the 8(a) program this year, has benefited from both informal and formal partnerships. Informal partnerships with hardware vendors have resulted in IntelliSys Technology winning two systems contracts with the Department of Agriculture during the past five years. "Because we were working with a vendor who already had a relationship with the Agriculture Department, we were brought in to perform some systems work," Johnson said.
Along more formal lines, IntelliSys Technology paired up with a larger company in 1995, BTG/Concept Automation Inc., Sterling, Va., when the 8(a) prepared to bid on a three-year, $32 million Department of Justice systems contract. The contract, which was designated as an 8(a) competitive prime contract, led IntelliSys Technology to seek a joint venture with Concept Automation because company officials believed they would stand a better chance of winning the contract as a joint venture, according to Johnson. "I believed our joint venture relationship demonstrated a real commitment to meet the requirements of the client," Johnson said.
"It would have been nearly impossible to have won the contract as a $6 million company, which we were at the time," Johnson said.
Although the joint venture relationship required approval by the Small Business Administration, it represented a more secure relationship for IntelliSys Technology than the usual teaming agreements between 8(a) companies and larger, non-8(a) companies. "The real key here is trust between the partners," Johnson added.
Johnson said developing sound partnerships will remain a critical part of IntelliSys Technology's strategy in the company's post-8(a) life. He expects his company will partner with smaller 8(a) firms to nurture them along as they win significant 8(a) prime contract awards.
Roger Mody, president and CEO of Signal Corp., Fairfax, Va., has also experienced considerable growth largely on the strengths of Signal's partnerships. Between 1991 and 1995, Signal, a 1995 Fast 50 company, grew from $4.1 million in sales to $26 million in sales. That growth largely resulted from Signal's participation as a subcontractor to prime contractors, such as Northrop Grumman, on government business, according to Mody. Some 95 percent of Signal's current business comes from the federal government, and 21 percent of the federal work is under the 8(a) program, he said.
Before becoming 8(a) certified, Signal, which was founded in 1987, had pursued a strategy of growing the business largely through commercial and government sub- contracting opportunities. Mody said the strategy has enabled Signal to build a business that now relies heavily on winning work on massive IDIQ contracts as both a small business subcontractor and an 8(a) prime contractor. Mody says Signal successfully procured 8(a) prime awards and small-business subcontracting awards in the Department of Transportation's Information Technology Omnibus Procurement program. "The IDIQ vehicle has become quite popular. We were able to see the marketplace headed in this direction and we prepared for it," Mody said.
Mody said the current procurement environment is suited to Signal's strengths, which include extensive subcontracting experience. He cautions 8(a) companies against relying too heavily on sole-source 8(a) procurements because federal acquisition reform is fueling a more competitive environment for all government contractors. In the long run, 8(a) companies can better develop their competitiveness through subcontracting opportunities, according to Mody.
Among large companies partnering with smaller firms, Unisys Corp., Blue Bell, Pa., has earned praise for its role as a partner to small and disadvantaged businesses. The company won the Department of the Treasury 1995 Large Business Partner of the Year award for its involvement with small- business contractors. The Treasury Department cited Unisys as having an "impressive outreach and subcontracting program." Of the total dollars Unisys spent on goods and services in 1995, 37.2 percent, or nearly $400 million, went to small businesses, 6.5 percent to small women-owned businesses and 6.2 percent to small minority- owned businesses.
Ray Davis, a program manager at Unisys Federal Systems Division in McLean, Va., said Unisys has been aggressive in bringing 8(a) and other small disadvantaged companies into its participation in federal government IDIQ contracts.
Davis, who manages Unisys' Defense Information Systems Agency's Global integration Services/DEIS II program, said his company looks for technically skilled, aggressive, small companies to partner with on IDIQ contracts. Success with the large contracts requires that prime contractors build teams that can respond quickly to job orders and demonstrate flexibility and resourcefulness, according to Davis.
Davis said Unisys exceeded its small and disadvantaged business requirement on DEIS I, which included seven small, disadvantaged businesses and 8(a) companies. With DEIS II, all the DEIS I small-business partners are participating in the new award. "We intend to have business partners with whom we can develop long-term relationships," Davis said.
DEIS II requires its prime contractors to allocate 20 percent of contract work to small businesses, small women-owned businesses and small disadvantaged businesses, which include 8(a) companies. DEIS II is a five-year, IDIQ contract that has a total value of $3 billion. The potential value to Unisys Federal Systems Division is between $400 million to $500 million, according Unisys officials. Another valuable partnership route pursued by 8(a) companies have been those existing in the high-end, application-based, computing solution arena. As government buyers look for high-end computing products, such as groupware, advanced database management software and Internet/intranet software, 8(a) companies have teamed with technology vendors to offer solutions.
Solutions By Design Inc., Gaithersburg, Md., a 1995 Fast 50 company, has experienced considerable growth over the past few years by specializing in the development of a Lotus Notes-based office management software product. Last year, the 8(a)-certified company that had $1.7 million in sales won a three-year, $3 million contract with the Environmental Protection Agency to install the software in the agency's networks. "Our partnership with Lotus Corp. has helped us grow by servicing a niche in the government market," said Maria Huntalas, director of business development at the company.
Huntalas said Solutions By Design has been a premium business partner of Lotus Development Corp., Cambridge, Mass., since 1992. She attributes Vice President Al Gore's reinventing government initiative with sparking interest among EPA officials and other government infotech buyers to seek groupware products and solutions. Solutions by Design has worked closely with the EPA to customize Lotus Notes software at EPA. "Our expertise has been in customized automation software, and that's where the growth has been in the federal government," Huntalas said.
Edward Howlette Jr. says his company, Nexgen Solutions Inc., Washington, is specializing in areas where government agencies have only begun to aggressively seek solutions. Among its specialties, Nexgen focuses on collaborative computing and electronic commerce products. Although Nexgen is an 8(a)-certified company, it has yet to obtain any 8(a) contract work because it has largely acquired its experience in the commercial arena.
Currently, 95 percent of the company's business comes from commercial clients. In 1995, Nexgen generated revenues in excess of $2 million. Howlette expects revenues in 1996 to exceed twice that of 1995. "Our chief partner has been the Lotus Consulting Services Group, and we've done millions of dollars in business with them," Howlette said.
Howlette is well aware that Nexgen stands to benefit from participation in the 8(a) program. Howlette said Nexgen is now pursuing a competitive 8(a) contract with the U.S. Customs Service. He said he believes 8(a) work will enable him to grow Nexgen with the stability that government contracts often provide high-technology companies. "We believe government contracts will provide us the opportunity for stable growth," Howlette said.