“I’ve gotten used to it,” he said. “You run into people who aren’t deliberately unethical and some who are unethical on purpose. I try not to do business with those people more than once.”
Basu is not alone in his caution. Nearly a third of subcontractors reported having at some point been “stiffed” on a contract with a prime, according to a recent American Express survey. For the report, AmEx surveyed 740 small federal contractors. While the practice raises ethical issues, it’s not illegal: Contracting regulations don’t mandate that a prime firm must stick with any particular sub.
Subcontracting is often an attractive option for small firms looking for a piece of a big contract. The report found that nearly half of active small firm contractors have successfully pursued subcontracting as a procurement strategy, and these businesses derive an average of 25 percent of their procurement business from subcontracts.
But for many, being listed as a subcontractor on a winning bid sometimes results in disappointment rather than new business. The survey found that 29 percent of small firms have been victims of “baiting and switching,” in which a prime contractor wins a bid with a specific subcontractor but then either uses a different sub in the execution of the contract, or simply keeps the work for themselves.
Switching subcontractors can occur for a variety of reasons. Sometimes a prime simply finds a subcontractor that will perform the job for less than the price offered by the original subcontractor.
“Anecdotally you hear that it happens, but it turns out is a very big challenge for small businesses who are getting involved in federal contracting,” said Julie Weeks, an AmEx research adviser and author of the report.
From the prime’s perspective, replacing a subcontractor sometimes just makes sense for a particular project. For example, a prime may list a sub because its status as a woman-owned, minority or disadvantaged business will fulfill a contracting set-aside requirement. But after the award, the prime may realize the subcontractor doesn’t have the specific skills or capacity to meet the requirements of the order.
“Sometimes the government or a customer might require some very sophistocated subject matter expertise, for example,” said Ray Bjorklund, chief knowledge officer with the government-contractor software company Deltek. “While a small business might have very talented people and the capacity for doing some of the work, that small company may not be able to deliver that kind of expertise.”