Small federal contractors feeling the pinch of reduced government spending

In 1994, Doña Storey secured one of the largest federal contracts in the history of her small company. The project management firm, Quality Technical Services, was charged with installing thousands of workstations for the massive new IRS towers, and in order to do it, Storey planned an 18-month, minute-by-minute schedule for the building’s loading docks.

What she didn’t plan on was a series of ice storms that struck the Washington region that year.

Loading...

Comments

• Weigh In
• Corrections?

“We had to call the truckers, find a spot on the map to waylay them, then get them into the city and onto the IRS dock at the exact hour. If they were late, that would throw us off by an entire week,” she said. Borrowing a phrase from a former boss, she likened the work to “diving from the top of the Empire State building into a bucket of water — you have to know exactly where you want to land.”

Providing services for the federal government has always been hard work, and now it’s getting even harder. Small business owners are having less success in securing U.S. government contracts even as they pursue contract work more aggressively, according to data from a new report released this week by American Express OPEN, which polled 740 small business federal contractors in an online survey.

Active small business contractors reported that they spent an average of $86,124 seeking federal contracts in 2009, but they spent $103,827 doing so in 2010 — an increase of 21 percent. The costs include both staff time and expenses such as travel, mail and meetings.

At the same time, small businesses are having fewer victories in getting contracts. From 2007 to 2009, AmEx calculated that these companies had a .410 contracting “batting average” — the number of secured contracts divided by the number of attempts, or “bids.” From 2008 to 2010, that number was down 8 percent, to .379. The average number of bids the contractors submitted also dropped, from 6.5 prime bids and 2.6 subcontracting bids from 2007 to 2009 to an annual average of 3.4 prime bids and 1.4 subcontracting bids from 2008 to 2010.

The changes likely stem from government spending cuts, which have shrunk the amount available for contracts to $476.4 billion in 2011 from a high of $541.8 billion in 2008.

“Contracting has gotten more competitive,” said Julie Weeks, an AmEx OPEN research adviser. She said the slump in bids might have resulted from an increased pressure to make each attempt count. “As there’s more competition, small business contractors are spending more time making sure their i’s are dotted and t’s are crossed.”

Subcontractors hit hardest

The success rate declined even more — by 27 percent — for subcontractors, who tend to be smaller. Weeks’s team thinks this might be because prime contractors are holding on to more of their work as government spending dries up, rather than doling it out to subcontractors.

“Large primes are not opening up for as much subcontracting activity,” Weeks said. “Federal spending is down, and it’s impacted big contractors, which then has a ripple effect on small businesses that are suppliers to the larger primes.”