The decision to become a subcontractor is perhaps an easy one to make--but as any seasoned entrepreneur will tell you, securing that coveted contract is an entirely different story. That's because the subcontracting process itself--from the initial invitation or query to contract award--often involves a tangle of complexities, any one of which can deter even the most ambitious amateur. From increasing global competition to Fortune 100 vendor consolidation, challenges run rampant. But the good news is, small businesses can learn to compete--and win.
According to the most recent figures from the National Association of Purchasing Management (NAPM), an organization for purchasing and supply management professionals, 54 percent of its members spent between $1 million and $10 million on purchasing in 1996, and 10.4 percent of its members surpassed the $50 million mark. That means subcontracting is and will most likely continue to be big business for entrepreneurs, despite the challenges involved. The advantages of a successful subcontracting relationship are more than worth the effort: You'll gain invaluable experience, expand your business, and open the doors to more big business and government contract relationships.
So what's the best way to get started? That depends not only on your product or service, but also on the type of company offering the contract. Many specifically seek small-business participation to meet threshold requirements, often because they're working on projects for the federal government. When bidding on a contract, says Gary Engebretson, president of the Contract Services Association of America, your first three steps should be:
*providing the procurement representatives with detailed information about your qualifications
*calling back and keeping the pressure on, but in a gentle way, and requesting a personal visit
*and being patient; the contractor may be seeking future, not current, prospects. Sell yourself to that corporation before a job even becomes available.
Another thing to bear in mind--especially if you've been down the subcontracting path before and have been unsuccessful--is that important changes have occurred in the government sector over the past few years. Consider recently passed legislation on federal contract bundling that Engebretson says is favorable to small business. (For more on the legislation, see "Pulse," March.) While smaller contracts are often bundled into one large contract--making it difficult for all but Fortune 1000 companies to get their teeth around the bid--the law now requires that 23 percent of all federal contracts be handled by small, entrepreneurial firms. Businesses that are awarded contracts that are part of a bundle carry responsibility for only a portion of the project, rather than the entire thing.
Businesses should also keep in mind the recent trend of businesses relying on subcontractors' past performance when awarding contracts. Unfortunately, that has a negative impact on small businesses that have yet to get their subcontracting feet wet. On the flip side, if subcontractors do quality work, they can acquire a good reputation, which may lead to more and larger contracts. "One of the best things a small company can do is to do quality work," says Engebretson.
And of course, the Internet will play a large role in the future of subcontracting. As purchasing managers and government agencies move toward the use of e-commerce and data interchange, potential subcontractors will eventually be able to submit proposals and be evaluated electronically. So if you don't have a Web site yet, it's time to get one.
One final note: Some experts speculate that California's recent abolition of affirmative action in state contracts will have negative implications nationwide, making an already difficult process even worse. But for now, it serves as another reminder for small businesses to keep networking, stay aware of available bids and always strive for quality.