For many small firms, the first government revenue comes as a subcontractor. A prime contractor already has the contract, the past performance and the relationship with the agency, and needs someone local or specialized to do part of the work. Subcontracting lets you build references and learn how public contracts run without carrying all the risk. Teaming goes the other way too: as you grow, you may be the prime bringing in partners to fill gaps.
This is general business guidance. Teaming agreements, joint ventures and small business rules have legal consequences, so have an attorney review anything you sign.
Why primes need small subs
Primes look for subcontractors for practical reasons: a skill they don't have in-house, coverage in a region where they have no staff, a product line they don't carry, or extra capacity.
There's also a regulatory reason. For federal contracts, large businesses holding contracts above certain dollar values generally must have a small business subcontracting plan with goals for subcontracting to small businesses, including small disadvantaged, women-owned, HUBZone, veteran-owned and service-disabled veteran-owned small businesses. Under FAR 19.702, the current thresholds are $900,000 for most contracts and $2 million for construction, where subcontracting possibilities exist. These thresholds are adjusted periodically, so check the current FAR. Primes report against those goals, so they have a reason to find qualified small subs.
Many state and local governments have similar programs, such as minority- and women-owned business enterprise goals or historically underutilized business programs, with their own certification requirements. The details vary by state and even by city.
Finding primes
- SBA's SUBNet database lists subcontracting opportunities posted by prime contractors.
- SBA publishes a directory of federal prime contractors with subcontracting plans, including the agency, NAICS code, place of performance and contract value. Filter it by your NAICS codes and state.
- Federal award data on USAspending.gov shows who won contracts in your category and region.
- State and local bid tabulations and board minutes show who's winning locally.
- Many large primes run supplier diversity or small business liaison offices and have online supplier registration.
- Agency small business offices and industry days are good places to meet primes in person.
- Solicitations themselves: attendee lists from pre-bid meetings are sometimes posted, which tells you which primes are pursuing a bid.
Watching open solicitations helps as well. If a big managed services RFP comes out in your area, primes will be looking for local partners in the weeks before it's due. You can track these through open bids or a filtered category like IT.
How to approach a prime
Primes hear from a lot of small businesses that say "we'd love to partner." What gets a response is specific and relevant to something they're pursuing now.
- Pick a target. Find a prime pursuing or holding a contract where you can do part of the work.
- Find the right person. Usually the small business liaison, a capture manager or the program manager, not general sales.
- Send a short capability statement tailored to that contract: what you do, where, your NAICS codes, certifications, two or three relevant past projects, and contact info. One page.
- Say exactly what you'd do on their bid. "We can provide on-site desktop support at the six county facilities in the eastern region, with technicians based 15 minutes away."
- Follow up once or twice. Then move on.
Timing matters. Primes usually pick teaming partners during capture, well before the solicitation drops or in the first days after. Reaching out three days before proposals are due is almost always too late.
Teaming agreements
A teaming agreement is a contract between a prime and a proposed sub (or between two firms planning a joint venture) covering how they'll pursue a bid together and what happens if they win. Common terms:
- Which opportunity it covers
- Each party's role in writing and pricing the proposal
- The scope or share of work the sub expects if the team wins
- Exclusivity: whether you can join other teams for the same bid
- Confidentiality of pricing and proposal content
- When the agreement ends, including if the team loses
Pay attention to the work-share language. A teaming agreement that says the parties will "negotiate in good faith" a subcontract after award may give you much less protection than you think, and courts in different states treat these agreements differently. If you're committing exclusivity and proposal effort, try to get a defined scope or percentage.
Small business rules to know about
Limitations on subcontracting
If you win a federal small business set-aside as the prime, you generally can't pass most of the work to firms that aren't similarly situated small businesses. Under FAR 52.219-14, the limits are 50 percent of the amount paid for services, 50 percent (excluding materials) for supplies other than from nonmanufacturers, 85 percent for general construction and 75 percent for specialty trade construction. Our guide to small business set-asides covers set-aside types.
Affiliation and the ostensible subcontractor rule
If a small prime relies too heavily on a large sub to perform the primary and vital parts of a contract, SBA can find the two firms affiliated, which can cost the prime its small business status for that contract. This is a common trap in teaming, and it's a good reason to get advice before structuring a bid.
Joint ventures and mentor-protégé
Small businesses can form joint ventures to bid together, and SBA's mentor-protégé program lets a larger mentor and small protégé joint venture on set-aside contracts under certain conditions. Both have specific SBA rules and are worth researching on sba.gov once you're past your first few contracts.
Being a good sub
Your reputation with a prime is built on invoices, reports and response times as much as on the technical work. Meet flow-down requirements from the prime contract (security, insurance, reporting), keep timesheets and paperwork clean, and never go around the prime to the government customer on contract matters. Primes remember subs who made them look good, and they call those subs first on the next bid.
Once you have a few of these under your belt, you'll have the past performance to go after smaller prime contracts yourself.
Frequently asked questions
Which primes have to subcontract to small businesses?
For federal contracts, large businesses with contracts above FAR 19.702 thresholds (currently $900,000, or $2 million for construction) generally need a small business subcontracting plan with goals.
Where can I find prime contractors looking for subs?
SBA's SUBNet lists subcontracting opportunities posted by primes, and SBA publishes a directory of federal prime contractors with subcontracting plans.
What is the limitation on subcontracting?
If you win a federal small business set-aside, you generally cannot pay more than set percentages to firms that are not similarly situated, for example 50 percent for services under FAR 52.219-14.
Sources: www.acquisition.gov www.acquisition.gov www.sba.gov www.sba.gov www.sba.gov