Julie R. Weeks is an American Express OPEN Research advisor and the president and CEO of Womenable, a research, program and policy development consultancy enabling women’s entrepreneurship. For more information about the survey, visit www.openforum.com.
Succeeding in federal procurement takes time, money and a lot of perseverance from construction firms.
Construction firms interested in growth and expansion will often explore new markets. And for many construction companies, that new market could be the federal government.
In 2011, the U.S. government spent more than $535 billion procuring goods and services from outside suppliers, making it the country’s biggest potential customer. And according to a survey by American Express OPEN, construction firms make up 15 percent of the government’s small company suppliers.
The survey asked 740 small business owners (those active in providing their goods or services to a federal agency) about their challenges and successes in the federal procurement marketplace. The survey found the following results:
- Small businesses spend more pursuing government contracts. Over the past year, the amount of time and money that active small business contractors have invested in seeking federal contracting opportunities has averaged $103,827, a 21 percent increase over the previous year’s investment of $86,124.
- Small businesses bid on fewer contracts. Even though the average investment made in seeking federal contracts has risen over the past year, bidding activity has declined by nearly half—both in prime and subcontracting bidding activity. The average success rates for active small business contractors in both prime and subcontracting have also declined, which indicates a more competitive environment.
- The fourth time is the charm. Active small business contractors reported that they had to submit an average of 4.4 bids before they won their first prime federal contract. After their first taste of procurement success, they wasted little time before trying and succeeding again. Two-thirds of active small business contractors have worked on more than one federal contract, and, on average, it took them just under a year (11 ½ months) after their first procurement victory to win their second contract.
|Active small business contractors reported that they had to submit an average of 4.4 bids before they won their first prime federal contract.
- Experience pays off. Average success rates in prime contracting—38 percent overall—are significantly higher among those with 10 or more years of contracting experience (53 percent) compared to those who have been seeking federal contracts for three years or less (20 percent).
The American Express survey found the following results for construction firms:
- Construction firms invest more for procurement success. Small construction firms invested $137,520 pursuing federal procurement opportunities in 2010, which is 32 percent higher than the $103,827 average among all active small firm contractors.
- The larger investment pays off. Nearly half (48 percent) of active federal contractors say they have received $1 million or more in federal contracts, including 26 percent who have received $10 million or more. This compares to 38 percent and 17 percent of active small contractors in all industries. Overall, small construction owners report that 39 percent of their collective annual revenues come from federal contracts, and an additional 17 percent comes from state or local government contracts—a higher share than the respective 35 percent and 11 percent from all active small firm contractors. This shows that government contracting plays a somewhat larger role in the growth of construction firms.
- Prime contracting success rates for construction firms match the overall small firm average but fall short in subcontracting. Construction firms active in federal procurement are more active bidders, submitting an average of 14.6 bids over the past three years (from 2008 to 2010) compared to 10.3 bids among all active small contractors. Construction firms are also more active in pursuing subcontracting opportunities, with an average of 5.8 bids compared to an average of 4.1 bids among all small firms. However, construction firms are only slightly more successful—winning 39 percent of their prime contracting bids compared to 38 percent among all firms. On average, construction firms are less successful in subcontracting, with a 55 percent success rate compared to 66 percent among all active small business contractors.
- Federal contracting requires perseverance and seeking guidance from fellow business owners. Fifty-eight percent of construction owners, similar to 55 percent of all small firms, say no single turning point occurred that helped them succeed in federal contracting. However, among those who did point out a turning point, construction owners (27 percent compared to 22 percent overall) pointed to the value of advice and guidance from fellow small business owners instead of help from a champion within an agency.
While federal contracting may not be the answer for every construction firm, this survey does point out that many construction firms have found success in pursuing government contracting opportunities.