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Working with the federal government has a pecking order. Recent changes from Congress have made it slightly easier for small businesses to move up the chain, but there are still several factors that contractors must consider before attempting to make the leap.
Prime contractors, those that work directly with the government, hold the most power. They have privity of communications with the government customer, they receive credit and past performance ratings directly from the government customer, and they hold the contract with the government.
Subcontractors, those that work directly with the prime contractor, hold less power and are generally not afforded those same privileges. Subcontractors are often limited to a specific workshare, restricted from interfacing with the government customer, and they rarely receive credit for their performance on a project from the government customer or the prime.
As one of the most used evaluation factors, past performance is a key resource when submitting a bid to work directly with the government as a prime contractor.
For large prime system integrators that have held government contracts since their inception, providing evidence of past performance doesn’t pose a challenge. These contractors simply direct the government customer to the Contractor Performance Rating System (CPARS), which provides an official record of prime contractor past performance ratings.
CPARS qualitative ratings rank the prime contractor on factors such as quality of product or service, cost control, schedule/timeliness, management/business relations, and small business subcontracting. Those factors are rated on a scale from A=Exceptional to E=Unsatisfactory.
Previous experience as a prime contractor and the availability of CPARS ratings gives primes a substantial competitive bidding advantage.
Subcontractors historically haven’t received CPARS ratings and until recently, due to the legal agreement of the prime contract, didn’t have a right to request them from the government-end customer.
Congress recognized the lack of available, qualifying, relevant past performance ratings as a barrier for small businesses seeking to make the transition from subcontracting to prime contracting. To make it easier for small subcontractors to qualify for prime contracting opportunities, the fiscal 2021 National Defense Authorization Act (Pub. Law 116-283) revised Section 868 to recognize and require past performance ratings for small business first-tier subcontractors and joint ventures.
The Small Business Administration finalized a rule on the change in July. It gives first-tier small businesses the right to recourse if they’re not provided past performance CPARS ratings by a prime contractor on a vehicle with a subcontracting plan.
Will this change result in a flood of new small business prime contractors? Qualifying past performance isn’t the only evaluation factor in competitive procurements. For small businesses seeking to make the jump from sub to prime, there are numerous considerations, and the path isn’t clear cut.
If you’re a small business that now finds it has the qualifying past performance for prime bids, I urge you to consider the following steps.
- Assess your financial runway. Does your company have the cash flow required to support investments in compliance measures, audited financial systems, bid and proposal teams, or contract management?
- Perform a corporate review to determine what types of tools, systems, processes, or other resources you’ll need to support prime work.
- Determine your current corporate security posture. Prime contractors have the responsibility to ensure that the government data they interact with is protected at the appropriate level internally and throughout their supply chains. As the prime, the responsibility is yours.
- Review your current customer landscape. Are the government customers you currently serve on subcontracts likely to contract with you directly?
- Refine your current corporate policies, processes, and procedures to create efficiencies that drive down cost and time spend.
- Poll your current team to ensure any internal capability gaps are filled and your core competencies are supported.
- Secure your current supply chains. Having a robust and diverse supply chain is critical as a prime contractor. No one company does everything, and having a strong network of capable and reliable resources is key to providing a complete solution, especially as a small business.
- Determine the impact your bid will have on your existing prime relationships. While primes are required to provide you with past performance ratings, they aren’t required to support your prime bids. Without taking stock of existing prime relationships, the outcome could damage them.
- Evaluate your current contracts and past performance to identify work done as a first-tier subcontractor, as well as efforts performed as part of a joint venture, before requesting ratings from the prime.
- Forecast your recompete opportunities to develop a capture list to pursue as a prime bidder in the next 12 to 24 months. This gives you time to ghost the competition by highlighting your company’s value and strengths as the competition’s weakness, without mentioning the competition by name.
- Launch marketing efforts aimed at educating prospective government customers and corporate partners on the benefits of contracting with a small business. These advantages include industrial base development, innovation, accessing new technologies and the brightest minds, flexible/agile processes, and often better rates.
- When opportunities are released, be prepared to craft compelling and compliant proposals utilizing the past performance ratings as evidence of ability to perform.
Entering the government contracting industry looks slightly different for every business. While it has just become easier with the changes to the law, businesses of all sizes need to take an adequate amount of time to assess the risk before making the leap from subcontractor to prime. The process sounds straightforward, but it’s a long-term strategy with no guarantees of success.
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Chelsea Meggitt , CEO of Collaborative Compositions, has an MBA from the University of Washington and is a business strategist and government contracting consultant with more than a decade in the industry. She works with small and mid-size businesses to launch and expand their government contracting business and has a knack for identifying the path of least resistance to achieving government contracting success.
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