Business owners who team up with other small businesses to jointly bid on federal contracts see the greatest results, according to a new study.
American Express OPEN, the small business division of the financial services company, found that 68 percent of active small business contractors who have pursued teaming opportunities have exceeded $1 million in federal contracts won to date, and 38 percent have exceeded $10 million.
Businesses that partner with a larger prime contractor also report a higher success rate versus the average small business contractor: 61 percent of active small businesses that have performed as a subcontractor report that the total value of all of the federal contracts they have won to date exceeds $1 million, and 31 percent have exceeded $10 million.
In contrast, a lower percentage of all active contractors have exceeded the $1 million and $10 million milestone in federal contract awards won to date: 46 percent and 21 percent respectively. Active contractors are defined as small businesses that have been awarded a prime federal contract within the past three years.
The study also found that compared to active contractors overall, small business owners who employ teaming or subcontracting strategies win 50 percent more contracts. However this greater success requires a larger investment in uncovering contracting opportunities.
On average, active contractors invested just over $86,000 in cash and staff time when bidding for federal contracts in 2009. Active teaming contractors and subcontractors invested $149,000 and $123,000, respectively.
"Partnership through teaming and subcontracting arrangements can clearly lead to greater contracting success and help drive revenue," said Karen-Michelle Mirko, director of advocacy at American Express OPEN. "While these collaborative contracting strategies require more time and money than going it alone, the pay-off can also be greater. In fact, 45 percent of contractors who team up and 42 percent who subcontract report revenues of $5 million or more compared to 36 percent of active small business contractors."
The survey is based on more than 1,500 small business owners listed in the Federal Procurement Data System and registered on the Central Contractor Registration, the primary vendor database for the federal government. It focuses on the experiences and successes that active small business contractors have enjoyed through subcontracting and teaming opportunities.
The survey also found that profitability increases as a direct result of federal contracts: 41 percent of active small business contractors surveyed say that the profitability of their company has increased due to pursuing sub-contracting opportunities.
The percentage rises to 50 percent for those active in teaming relationships. Contractors in the technical and professional services field are the most involved in teaming and subcontracting: 74 percent of active small business contractors in the professional and technical services industry pursue subcontracting and 70 percent are involved in teaming.
The Southern region of the U.S. reports greater activity around teaming and subcontracting: 60 percent of active small business contractors in the South are involved in subcontracting and 53 percent engage in teaming. In contrast, only 35 percent of active contractors in the Northeast pursue teaming relationships.
Firms owned by African-Americans and Asian-Americans are much more likely than average to be pursuing subcontracting and teaming for procurement success: While 56 percent of all active small business contractors (including 54 percent of Caucasians) have pursued subcontracting, that share rises to 61 percent among business owners of color including 64 percent of African-Americans and 74 percent of Asian-Americans.
Hispanics pursue contracting at about the same rate (55 percent) as all active small business contractors. With respect to teaming, 45 percent of all active small contractors have pursued it: 42 percent of Caucasians and 65 percent of all minorities, including: 51 percent of Hispanics, 65 percent of African-Americans and 70 percent of Asian-Americans.
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