Tips and Tricks for Selling to the Government as a Small Business

Contracting with U.S. federal, state, local and Canadian government agencies is unlike working with any other client. Small businesses in particular have the opportunity to capitalize on the numerous acquisition priorities and policies specifically put in place to enable their success and ensure their ability to compete.

In this blog we provide a guide to selling to public sector clients as a small business.

The Opportunity for Small Businesses to Sell to the Government

While your initial foray into the world of government contracting may feel daunting, taking the time to understand regulations and policies specifically designed to enable the success of small businesses is well worth it. For example, the U.S. federal government has a goal of conducting 23% of prime contracts with small businesses and 30% of subcontractor contracts with small businesses. U.S. state, local and education (SLED) governmental entities, as well as federal and provincial governments in Canada, also set similar goals to contract work to small businesses as a means of strengthening local economies.

To show just how much of a priority small business contracting is in the world of federal government contracting, the U.S. Small Business Administration (SBA) maintains a ‘Small Business Procurement Scorecard’ to track government-wide performance against these targets on an annual basis. Below is a snapshot of the SBA’s latest Small Business Procurement Scorecard:

Source: U.S. Small Business Administration, FY2020 Small Business Procurement Scorecard. FPDS-NG Prime Contracting Data as of Feb. 22, 2021. eSRS Subcontracting Data as of Apr. 15, 2021

As you can see from the tables above, government maintains an intentional focus on meeting and surpassing its stated goals for small businesses across specific socioeconomic categories with significant dollar amounts in spending available for small businesses.

Understand Common Small Business Socioeconomic Programs and Categories

A key to improving your ability to compete on government contracts as a small business is determining which socioeconomic categories, if any, fit your organization. For many contract types, agencies are often required to set aside part or all of a contract for one or more of these socioeconomic categories. Similarly, large prime contractors are often required to submit subcontracting plans to meet these socioeconomic qualifications.

The U.S. Small Business Administration (SBA) offers a number of programs designed to help small businesses win their share of federal government contracts. Similar categories/classifications also exist among U.S. state and local governments as well as among Canadian federal, provincial and MASH (Municipal, Academic, Social Services and Healthcare) entities. Below are definitions for several of the most commonly-used socio economic categories the SBA’s programs are designed to support:

• Women-Owned Small Businesses (WOSBs): The U.S. federal government aims to award at least 5% of federal contracting dollars to qualifying WOSBs every year.
• Service-Disabled Veteran Owned Small Businesses (SDVOSBs): The government aims to award at least 3% of federal contracting dollars to qualifying SDBVOSB firms every year.
• 8(a) Business Development Program for Small Disadvantaged Businesses: The government aims to award at least 5% of federal contracting dollars to qualified small disadvantaged businesses every year.
• HUBZone: The government aims to award at least 3% of federal contracting dollars to HUBZone-certified small businesses every year. A HUBZone is a historically underutilized business zone where the government is looking to foster economic activity such as job creation. Of the small business programs, it is the only program not focused on the ownership of the business, but rather the location of the business and its employees.

Now that you understand common socioeconomic categories designed to help small businesses like yours thrive in the government contracting space, it’s important to get a deeper understanding of how the government sets its small business goals and measures its progress towards meeting these goals.

SBA’s Contracting Goals and Definitions

Governments in the U.S. and Canada believe that supporting the growth and development of small businesses helps to keep their economies strong, and they view the creation of programs designed to stimulate small businesses as a core governmental responsibility.

In order to monitor how well they are doing in their mission to support small businesses, the SBA established a set of goals over 30 years ago to help ensure small business participation in the U.S. federal market. The goals are based on how much of the overall fiscal year’s contract dollars were obligated to small businesses. This does not mean through set-aside procurements, but based on the awardee’s business type. Restricting procurements to these socioeconomic categories helps ensure agencies hit their goals.

Here are the standardized prime contracting goals for U.S. federal government-wide procurement:

• 23% Small Business (SB)
• 5% Small Disadvantaged Business (SDB – includes firms in the 8(a) program)
• 5% Woman Owned Small Business (WOSB)
• 3% Historically Underutilized Business Zone (HUBZone)
• 3% Service Disabled Veteran Owned Small Business (SDVOSB)

Within individual departments, the SBA works with the agency to establish a specific small business goal, while the other socioeconomic categories remain the same percentage as the overall government. There are also subcontracting goals for small business.

Each year, the U.S. federal government as a whole, as well as individual agencies, receive a report card with their resulting scores. Included in the report card are the methods to the agency implemented – or plan to implement – in order to continue to improve their scores.

Some agencies have a tougher time reaching their goals, depending upon the needs of the agency to fulfill its mission. For example, the Department of Energy (DOE) often has a tough time hitting its number as most of the prime contract dollars for DOE are routed towards the large Management and Operations (M&O) contracts. However, they try to make up for their shortfall of prime contracting goals with subcontracts.

The Department of Veterans Affairs (VA) exceeds its SDVOSB goal by a large margin, but has a tougher time with other socioeconomic categories. The VA has an established hierarchy of contracting preferences. This means the VA must consider SDVOSB and Veteran-Owned Small Businesses (VOSBs) prior to other small business preferences.

If your organization is already selling to Canadian federal and provincial governments, or has interest to grow your footprint into Canada, it is also useful to understand that the Canadian government maintains similar set-aside programs also designed to stimulate their economy. One notable point of distinction is that the Canadian government places emphasis on stimulating opportunities for Indigenous-owned businesses that can prove business ownership that is First Nations, Inuit or Métis affiliated and typically must have a footprint or residency in Canada. While most set-aside requirements in Canada are typically oriented towards these requirements, there are often also other common similar set-asides that share characteristics with those most commonly used in the U.S. as noted above.

Identifying which agencies have hit or missed their goals can help aspiring small businesses who wish to pursue government contracts pinpoint which contract opportunities to pursue.

Interpreting the Government’s Coding Systems for Buying and Selling

As part of transparency of how your tax dollar is spend, U.S. federal contracting categorizes industries through both Product Service Classification (PSC) codes and North American Industrial Classification System (NAICS) codes.

• PSC codes are used to represent what the government is buying. When the government issues a solicitations, these codes identify the type of goods or services the government believes it wants to acquire. The codes are comprised of four alphanumeric characters. Product-based codes start with a number (0-9) and services-based codes start with a letter (A-Z).
• NAICS codes identify what a company is selling. As the government pulls their requirements together into a solicitation, the codes identify the type of vendor that offers these goods or services. The codes are six digits, though shorter versions represent broader categories of those industries. Additionally, each code has an associated small business size standard, which determines if a business is large or small for a particular government contract opportunity.

NAICS codes are more commonly used by U.S. federal government with some usage by U.S. state, local and Canadian governments. On the other hand, PSC codes are viewed as more granular. The NAICS code system is revisited every five years. New codes are added to either better reflect a specific or emerging industry and old codes are retired. PSC codes on the other hand are refreshed on a less regulated schedule.

The government uses these codes to identify potential bidders for competitive and sole-source opportunities. These codes are then assigned to potential opportunities. Small businesses should use these codes to identify potential opportunities to pursue as well as teaming partners.

In order to improve your ability to compete in the U.S. federal market, it is important to ensure your SAM.gov registration includes both the PSC and NAICS codes that best fit your business. Most companies will have more than one code, as goods and services may apply to multiple industries.

If your firm is already selling to Canadian federal and provincial governments, or wants to get started, the Government of Canada maintains a similar vendor registration site called Buy and Sell that you will want to be aware of. The Public Services and Procurement Canada (PSPC) portal is another site to monitor when pursuing public sector opportunities in Canada. Canadian governments also have a tendency to use the United Nations Standard Products and Services Code (UNSPC) structure over PS and NAICS codes which are more commonly used in the U.S.

These codes help small businesses understand market sizing for their industry and provide answers to key government contracting questions such as:

• Is the government really buying what my firm is selling?
• Which agencies are in the market for solutions that my firm offers?
• Are there any active or upcoming procurements set aside for one or more socioeconomic business categories that my company qualifies for?

Understanding which codes apply to your company is foundational in determining a bid/no-bid decision and is a core component of any public sector business development strategy.

Next Steps for Success in Selling to the Government

Now that your understand more of how U.S. and Canadian governments enable the success of small businesses, you might have some of the following questions:

• Where can I get a sense of the public sector market opportunity for my product or services to start developing my sales pipeline?
• What solutions or services are available to help me gain access to contract opportunities that look like a good fit for my business before they “hit the street?”
• Is it possible to gain access to information and analytics that can help me understand where my competitors are winning business in U.S. federal, state, local and Canadian government markets?
• How do I find information so I can begin to reach out and develop relationships with potential government clients and teaming partners?

The answers can be found with a comprehensive North American government market intelligence solution like GovWin IQ from Deltek.

“We can see a clearer path to specific opportunities with the intel we get from GovWin IQ. We can track potential revenue streams that keep us on target for our annual and future goals. It's no longer throwing darts in the dark for us.”

Craig Camacho, Business Operations Manager, GPSI Guam

If you’re ready to get started, click here to try GovWin IQ for free today.

And, to learn more about how to start (and scale) your small businesses’ public sector sales growth in U.S. federal, state, local and Canadian government markets download a copy of GovWin’s free guide, Selling to the Government as a Small Business.