Small Business Contracting Costs Are Up, Report Finds

By Sam Skolnik

Dec. 13 – Small-business federal contractors continue to spend more money in seeking government contracts, according to a new report.

Smaller contractors spent an average of $148,000 while hunting for contracts in 2015, according to the Dec. 12 report from the American Express OPEN for Government Contracting program – a 15 percent increase from 2013 and a 72 percent jump since 2009.

At the same time, bidding activity among small-business prime and subcontractors has risen since Amex OPEN’s 2013 survey on the topic. On average, prime contractors submitted 18 bids between 2013 and 2016, and participated in 11 bids as a subcontractor. That represents a big increase from the three years prior, when surveyed firms had submitted six prime contract bids and four subcontracting bids on average.

Federal contract spending and bidding fell precipitously after the Great Recession — a drop that prompted a slower-than-anticipated recovery, the report noted. “Although the average investment made in seeking Federal contract opportunities has increased in each survey since 2010, the level of bidding activity is only now rebounding from the significant drop seen in the 2013 survey,” the report found.

Batting Average

The Amex OPEN program — which helps small-business owners gain information to win contracts — also had released surveys on the topic in 2010, 2011 and 2013.

In its most recent report, survey officials interviewed 502 small-business owners, online and over the phone, this May and June. Each was an active contractor.

The ratio of contracting victories — compared with bids submitted — fell slightly between the 2013 and 2016 surveys, according to the report. The prime contracting success rate was 50 percent on average this year, down from 55 percent in the earlier report. For subcontractors, the drop was steeper. Currently, that rate is 68 percent, down from 86 percent between 2010 and 2012.

For prime contractors, the 2016 survey confirms the correlation between contractor size and its bid success rate. The biggest primes — those with at least $5 million in annual revenue — had a success rate, or “batting average,” of 63 percent. Conversely, prime contractors that earn between $250,000 and $999,000, had a 29 percent success rate, the survey found.

The percentage for large contractors is comparable with a Bloomberg Government fiscal 2014 report, which found that the top 200 federal contractors were awarded 62 percent of all contract dollars.

As has previously been the case, contracting firms owned by people of color spent a bit more on contract bid costs in 2015 than their white counterparts, according to the Amex OPEN study — roughly $153,000 versus $145,000. By contrast, women-owned contractors spent about $108,000 going after contracts in 2015, just 63 percent of what man-owned firms spent.

‘A Very Good Thing.’

Smaller businesses often get hit harder by the costs associated with government work, including the bidding process, a small-business government contractor said.

“For a small business like ours, we cannot afford to have someone on payroll to write two proposals per year,” Randy Lebolo, president of Lebolo Construction Management in Boynton Beach, Fla., told Bloomberg BNA.

Lebolo, who was the Amex OPEN government contractor of the year in 2011, said his company has fluctuated between commercial and government contracting. For the past seven years, he’s been what he calls “an 8(a) contractor” – referring to the Small Business Administration program designed in part to help guide economically disadvantaged entrepreneurs through the federal contracting process.

Federal work makes up about 40 percent of Lebolo’s business, which has revenues of $20 million to $25 million per year and employs 20 people, he said.

The burdens of the federal system may be placed disproportionately on smaller businesses, Lebolo said, but having that line of work available to his company, especially in the wake of the recession, “has been a very good thing for my business.”

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