Complete Guide to Government Subcontracting

Here in the United States, federal government contracting remains a massive cog in the economic wheel. In 2022 alone, the federal government spent $636.5 billion on federal contracts. As a small business owner, you may think your business isn’t properly positioned to provide for the federal government, but you may be mistaken. Through subcontracting, small businesses have the opportunity to capture some of this spending by the federal government by working with prime contractors.

Prime Contracting vs. Subcontracting

Prime contractors engage and work directly with the federal government. Typically, prime contractors are larger, more established businesses (think Lockheed, Verizon, FedEx, etc.). If your business is interested in exploring prime contracting, you can read our guide on securing your first contract here.

On the other hand, businesses that opt to engage in subcontracting don’t interact with the federal government directly. They are managed by prime contractors who have signed a federal government contract. Prime contractors seeking subcontractors will post their opportunities in the U.S. Small Business Administration’s Subcontracting Network (SubNet).

Subcontracting Benefits

Subcontracting is a wonderful avenue for businesses to explore the federal contracting space. Prime contractors must undergo an arduous, comprehensive registration process, while subcontractors do not. Through subcontracting, companies can nimbly seize opportunities as they present themselves. Furthermore, subcontractors can foster relationships with much larger firms resulting in potential future business. As firms engage in subcontracting, they can become specialized in a particular area. Once this specialization is established, more prime contractors will seek out the company to enlist their services as a subcontractor. This development can lead to compounding growth for a small business.

Federal Contract Awards with Subcontracting Plans

Various government contracts force large businesses to subcontract with smaller businesses to create more growth opportunities for domestic small businesses. Federal contracting officers have the latitude to include subcontracting elements exclusive to small businesses in their agreements with federal contractors. Note: Small businesses wanting to work with larger companies must self-certify as “small” within the U.S. Small Business Administration’s sizing standards. Additionally, prime contractors can use the Dynamic Small Business Search to discover small businesses that fit their subcontracting needs.

How to Become a Government Subcontractor

Okay, so you’ve decided to take your company headfirst into subcontracting. Once you’ve registered as a small business with the SBA, it’s time to take the following steps to secure your subcontractor work.

1. Hone Your Business’ Value Proposition

As mentioned previously, you’ll want to identify what niche or specialization your business can address. By being specific with what your business can offer at a high level, you set yourself up for success in obtaining contract opportunities.

2. Properly Register Your Business Legally

This step was most likely handled upon the incorporation of your business, but still bears mentioning. Be sure that your business is registered legally (and with SAM) to prevent any consternation from the Internal Revenue Service. If subcontracting is new to your business, you might have to file your business taxes in a different manner. Subcontractors are considered self-employed entities, so align with an accountant to ensure you are legally set up correctly.

3. Review Subcontractor Rights and Needed Documents

The rules and regulations that oversee the subcontracting program are fully described in the Code of Federal Regulations, the Federal Acquisition Regulations, and various agency-specific documentation. Be sure to identify what agency oversees your particular industry and review these documents thoroughly before engaging in subcontracting agreements. Check what documents prime contractors in your business’ industry require. For example, some prime contractors require subcontractors to submit a capability statement before working with them.

4. Monitor Subcontracting Directories

Once you have reviewed and revised everything needed before searching for subcontracting opportunities, it’s time to start seeking them out! Below are directories where prime contractors post available work that you should routinely monitor.

5. Network with Prime Contractors

When prime contractors engage with federal contract officers that require subcontractor work, they’re incentivized to find subcontractors. Many large businesses encounter this situation frequently enough that they’ve developed web pages specifically for small businesses to register with the larger contractor and vet what services the large corporation is looking for. Here are a few examples of such websites:

6. Review Subcontracting Contract

Be sure to carefully review the contract that your prime contractor counterpart is offering. In particular, you’ll want to take note of the compensation, flow-through, and indemnification clauses. Again, large corporations are incentivized to work with your small business so most likely everything will be in order — but it can’t hurt to double-check that this is the case.

7. Acquire Project Insurance

Upon signing business, you’ll want to insure your business for the project. Most typically, small businesses opt for Commercial General Liability (CGL) coverage, which protects your business from any harm or damage you may be liable for. As you take on various subcontracting opportunities, work closely with your insurance provider to ensure that you’re best set up for success over the long term.

Other Notable Available Partnerships

Other than the partnerships between prime contractors and subcontractors, there are two other partnership types that are common within the federal acquisition space:

Joint Venture

Unlike contractual partnerships between prime contractors and subcontractors, a joint venture partnership is considered a new legal entity. This new partnership will require approval from the SBA, a separate federal identification number, and a new SAM user account. Joint ventures are formed to pool resources between businesses to support the corresponding government agency in a cost-effective manner.

Contractor Team Arrangement (CTA)

Specific to the GSA, a contractor team agreement (CTA) involves two contractors working together to meet the needs of agencies and organizations that order from GSA schedules. Note: A CTA is not the formulation of a new company and is merely an arrangement between two existing entities.

FAMR Can Help With Your Subcontracting Needs

We are dedicated to assisting businesses in navigating the federal marketplace regardless if they’re interested in prime contracting or subcontracting. Our team of federal government contracting experts will advise how to best position your business to capture contract opportunities to scale your business. On top of that, with our marketing services, we can help your business present itself in the best possible light to grow the government contracting element of your business. Ready to get started? Contact us online today!

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