Federal Contracting: Small Business Keys to Success

It’s a good time to be a small business in the federal market! Business development professionals have a great deal of confidence in their prospects for the year ahead. In fact a full 64% of respondents to our Deltek Clarity Government Contracting Industry Study believe that their government sales will improve, year-over-year, in 2023.

With the release of the FY24 federal budget request, growth in federal contracting for the next two years is very likely, as highlighted in this recent Breaking Down the FY 2024 Federal Budget Request webinar. The budget request is driven by generous funding allocations across the majority of federal agencies, with an expected $907B in budget for Civilian Agencies and $773B for the Department of Defense. The full budget request outline reflects the Biden Administration’s strategy for funding key priority areas, including climate change, healthcare, equity in business, R&D and IT.

With these increases the federal agencies have had a good deal of success in achieving their small business goals. In fact, in FY22 the U.S. federal government made an investment of $158.7 billion to small businesses, increasing 3% from the preceding year and setting a new record. And during this time, we’ve seen many examples of successful small businesses selling to the public sector and winning government business from federal agencies.

But succeeding is not without its challenges. While small business contracting is up and the percent of dollars spent with small business is up, the number of small businesses holding prime contracts has declined. With agencies moving to IDIQ task-order-based contracting, we are witnessing a consolidation of contracting raising the bar for small businesses in securing the cherished prime contract positions.

Deltek’s analyst team, the content contributors to our GovWin IQ service, has done a lot of research on the patterns that define business success in the government market. At the National Small Business Conference in New Orleans, I had an opportunity to present my research on what I refer to as the "4Cs" of government contracting and their importance.

The 4Cs—Capability, Customers & Partners, Contract Vehicles, and Compliance:

1. Capability: The ratio of prime contractors to federal buyers is 10:1, meaning for every buyer there's at least ten companies for every buyer. Except for your current customers, the chances are agencies don’t know you and don’t know what makes you unique. Without differentiation in your capabilities, you look like every other generic small business. Differentiating yourself based on your unique capability to meet the federal government requirements and project needs is critical in winning contracts.
2. Customers & Partners: To be successful, a company must establish relationships with agency buyers and form good partnerships with companies that can complement your capabilities. The federal market is massive, with over $684B spent annually on contracts. With subcontracting requirements and the nature of federal contracting, it is very much a team sport. 
3. Contract Vehicles: Agencies have shifted their contracting from awarding an RFP to a single company to adopting IDIQ task-order-based contracts that are held by many companies. In many agencies, if you are not a prime contract holder on one of these contracts, you will have little opportunity to compete for work with those agencies. Take for example the Department of Veterans Affairs. In FY 2022, T4NG had $2.7B spent on it while the VA spent $7.6B on IT, so it is now 35% of spending. Without a prime position on the T4 contract, you are essentially locked out of that agency or relegated to fighting for a subcontracting role on individual task orders. Finding and securing positions on the right contract vehicles that are aligned to your target customers is a critical success factor.
4. Compliance: It is a four-letter word for many, but successful companies embrace compliance and treat it as a competitive differentiator. Navigating the frequent changes in federal regulations can be challenging and may discourage some from entering the industry. Agencies are raising the bar in their compliance requirements, and it is showing up in solicitations that way.

   Take for example the OASIS Plus contract. The evaluation criteria were developed using a point system. In that point system, about 10% of the points were earned based on a company’s ability to satisfy various compliance requirements and certifications, such as an approved purchasing system, an acceptable estimating system and an earned value management system. While compliance can be expensive and drudging work, companies that invest in it gain a direct competitive advantage over companies that don’t. On the GSA OASIS Plus contract, without satisfying those compliance requirements, you’d have given up 10% of points compared to others—essentially meaning that you wouldn’t have been a viable competitor on that contract. And on the Alliant 3 contract, that number is closer to 19%.

The 4Cs—Capability, Customers & Partners, Contract Vehicles, and Compliance—are visibly evident in every successful federal contracting lifecycle. For small businesses that are serious about finding success and growth in the federal market, it’s time to take the 4Cs seriously and form a strategy for building and executing on them all as a foundation to your business.