Any company awarded a contract by the federal government is called a prime contractor. Prime contractors are not always able to provide all of the goods and services required to fulfill the contract. To meet the obligation the prime contractors often locate and purchases goods and services from businesses both large and small. This is known to as Subcontracting. And, if a prime contractor bids on a contract $500,000 (1 million for construction), the federal government requires that they develop and include in their bid a small business plan representing 23% of the total value of the contract. This 23 percent represents: 14% Small Businesses, 5% Small Disadvantaged Businesses (SDB), 5% Women-owned Small Businesses (WOB), 3% Service Disabled Small Businesses and 1% Hubzone.

Reasons Prime Contractors Choose Subcontractors

Prime contractors choose subcontractors for a variety of reasons.

1. It is required by the government.
   If a prime contractor selected by the government fails to negotiate an acceptable subcontracting plan, it will not be awarded the contract. This subcontracting plan must detail how it will subcontract with small business, small disadvantaged business, women-owned small business Historically Underutilized Business Zone (HUBZone) small business, and service-disabled Veteran owned small businesses.
2. It allows prime contractors to bid on large projects with areas outside their expertise.
   Many prime contracts are so large that the prime contractor is unable to accomplish all work in-house. A project may be attractive to a prime contractor, even though they realize they are only able to perform a percentage of the project. Prime contractors utilize subcontractors to fill in the additional areas of work.
3. It provides prime contractors with specialized skill-sets.
   A prime contractor may benefit from the specialized knowledge of subcontractors, leading to an improvement in design or manufacturing process. Lockheed Martin subcontracts many of the parts for a jet engine, and while possessing an extraordinary design staff, may benefit from design or manufacturing recommendations made by subcontractors on specific parts.
4. Bundling Increases Sub-Opportunities.
   Federal agencies have recently begun combining small contracts for different activities into larger contracts, with the implication that combining these small projects is more efficient and cost effective than bidding multiple smaller projects. Bundled contracts are often too diverse for prime contractors to handle alone, leading to an increase in subcontracting opportunities.

Advantages of Being a Subcontractor

For companies that wish to avoid the perceived complication of dealing directly with the government, but still want to benefit from providing services to the country's single largest buyer, subcontracting is the ideal solution.

1. Contractual relationship is with prime contractor. As a subcontractor, you have no contractual obligation to the government. Your agreement is to provide services or supplies to the prime contractor.
2. Payment protection. The government requires that subcontractors be paid before the prime contractor is paid. In contrast, private sector payments from large companies frequently exceed desirable payment periods, putting additional cash flow constraints on the small company.
3. Reduced administrative requirements. While some responsibilities are carried to the subcontractor - such as complying with drug/alcohol testing - the administrative requirements are less than those required of the prime contractor.
4. Direct chain of communication. Companies dealing directly with the government must follow prescribed procedures for submitting and seeking resolution of problems. Subcontractors are limited only by their relationship with the prime contractor, and problems can frequently be resolved by a single e-mail or phone call.

Resources for Subcontractors

There are many resources available for subcontractors who are looking for primes to work with and for primes who are looking for subs to meet their requirements. Below are a few of those resources that are available online.

• SBA

SBA offers several resources for subcontractors.

Model Sub-contracting Form

Sub-contracting list

SBA Sub-contracting Opportunities Directory - Ohio

 

• SUB-Net

SUB-Net is used by prime contractors to post subcontract opportunities. You can search for subcontracting opportunities by NAICS, keyword or solicitation.

SUB-Net

 

• DoD & SBA Prime Contractors List

The Department of Defense (DOD) and Small Business Administration(SBA) each maintain a list of prime contractors by state that can be used to identify subcontracting opportunities. The lists are by state and includes the names and contact information for Small Business Liaison Officers (SBLO) for each company.

DoD Prime/Subcontracting List

Government Contractor List

 

• TACOM

The US Tank and Armament Command (TACOM) generates, provides and sustains mobility and survivability for US and allied soldiers. TACOM maintains an online Prime Contractor list.

TACOM Small Business Office

TACOM Prime Contractor list