Government contracts are cumbersome, but small business owners would be wise to gear up for the learning curve involved in submitting winning bids

By Karen E. Klein
Business Week

When John DePaola heard President Obama talking about putting government stimulus money into weatherizing older, inefficient public buildings, he couldn’t have been more thrilled. As the owner of a small company that sells and installs energy-saving windows in the Washington, D.C., region, he thought, the stimulus package could help save money, reduce carbon emissions, and keep his company going through the recession.

“It’s a beautiful thing, to find buildings that need help and line up companies that employ people who can help and make sure there’s no funny business,” DePaola says.

But after months of meetings and networking, DePaola says he’s just about at wit’s end. “We don’t know what to do in order to get these government contracts. We’re ready, willing, and able to help, but nobody can tell us what to do. We’ve talked and talked and talked, but nobody ever has an action item,” he says.

Meanwhile, DePaola has cut his 90-employee company, Long Fence and Home of Beltsville, Md., to the quick and may have to consider furloughs this summer. “We’re hanging on as long as we can, but we’re left with just our very best people and I can’t cut any more,” he says, frustration creeping into his voice.

Others Are Breaking Through

Not far away, in Burke, Va., the situation couldn’t be more different. In fact, entrepreneur Martin Saenz is hiring. And he’s expecting the federal stimulus, formally termed the 2009 American Recovery and Reinvestment Act (ARRA), to be “company-changing” for the five-employee business he owns with his wife, Ruth.

The company, Signs by Saenz, which produces signage, art, framing, and trade show exhibits, has already been awarded a $3 million, three-year prime contract to do way-finding signs for government buildings that will be refurbished with ARRA funding, Saenz says. He also has submitted bids on an additional $2 million in contracts and feels he has a good shot at winning some subcontracts for other stimulus-funded projects.

“We’re currently hiring people who really need jobs, and we can partner with other local firms to ramp up for more work if we need to,” Saenz says.

He started his signage company four years ago, focusing mainly on federal government contracting work, and joined a membership group to help him navigate the complex contracting process and build relationships with government agencies and procurement officers who make the buying decisions. “That has been the name of the game,” Saenz says.

The Pipeline Has Its Advantages

It’s not surprising that small businesses already in the government projects pipeline are having an easier time navigating the bidding process and are among the first to be awarded contracts for ARRA work, says Guy Timberlake, CEO of the American Small Business Coalition, the organization that Saenz joined. He explains it along the lines of “going with what you know.”

“The stimulus bill was passed while government agencies were still spending their regularly appropriated budget for the fiscal year that ends on Sept. 30. In some cases, the stimulus money doubled what the agencies have to spend. So there’s this whole big bucket of money and they’re doing everything they can to spend it, but it’s a challenge to create all these new contracts. It’s easier to make modifications to existing contracts or use [vendors] already in the network,” particularly when the pressure is on to push funding out the doors quickly to create jobs, Timberlake says.

As of mid-July, $187.4 billion in funds was made available for spending through the ARRA and $67.4 billion had actually been paid out, according to Recovery.gov, the government Web site that is tracking the stimulus spending.

A slice of that money—about $14 million—will go to North Wind, an environmental engineering and technology company based in Idaho Falls, Idaho. President Sylvia Medina has won several stimulus subcontracts for work that her 350-employee firm does on hazardous and nuclear waste remediation and recovery.

She has five full-time employees handling government contracting work and they win about half of the jobs they bid on, Medina says. “About 80% of our work is for federal government agencies and 20% is for private industry,” she says. She has hired five people and contracted with several subcontracting firms to work on an Energy Dept. recovery-act contract that her firm is performing alongside Bechtel, which has partnered with North Wind in a DoE-sponsored mentor-protégé program for the past eight years.

Medina is optimistic about the recovery program and believes it will save jobs. But she understands how difficult breaking into the contracting world—which comes with a confusing set of procedures, distinct auditing methods, and acronym-heavy lingo—can be for small businesses that haven’t done it. “The best thing to do if you’re not already in the system is to approach companies that are and see if you can become a sub-tier contractor,” Medina says.

Payment and Credit Headaches

Timberlake says another possibility is for small companies to look for recovery-funded projects closer to home. “Much of the money will go out from the federal government but even more of it is going down to the state and local level. I’d recommend that small companies get familiar with government agencies in their backyard,” he says. Find out what kinds of projects will be considered and whether these agencies are taking suggestions for local spending.

Another challenge with government work, however, is the payment schedule, says Malcolm Parvey, a longtime government contracting consultant and author of Winning Government Contracts (Career Press, 2008), a book aimed at small companies that want to bid on government jobs estimated at $100,000 and less.

While large corporations can live with the 90- or 100-day payment schedule that is typical of government work, or the potential for months-long delays before jobs even get started, most small businesses with leaner cash flow need to be paid 30 to 45 days after they ramp up for a job. “They can’t wait three months for a check,” particularly now with credit lines tightened or canceled for many small firms, Parvey says.

That’s been a problem for Tait Nielsen, founder and director of operations at Andrada General Contractors in Phoenix. “A year ago, we had credit lines and paid our bills on time, so we had strong credit ratings. Then the financial markets collapsed and lenders slashed credit lines, usually to the outstanding balance of the line,” Nielsen explains. “Now our credit is trashed, because the formulas that calculate ratings look at credit utilization as a primary factor. Even though we never ran up our lines, it looks to the formulas like we maxed out our credit—when in fact our lines were reduced due to no action of our own.”

Nielsen has bid on a handful of government jobs this year, some of them funded by the recovery act, but has become discouraged after spending about $20,000 and not winning one. He had 16 employees earlier this year and is down to three after a series of layoffs. “We had to lay off the guy who looked for government opportunities,” he says, “and it’s very time-consuming to monitor the jobs, put proposals together, and follow up.”

The most frustrating experience came a few months ago, Nielsen says, when Andrada bid on a Forest Service contract that required two days of hiking around forests for site visits. “After all of that, they changed their minds and wanted a rebid. We didn’t bother with the follow-up,” he says. In another instance, his bid on a job for the General Services Administration was disqualified because he had misplaced a piece of paper in the packet his firm submitted. But the instructions were contradictory, Nielsen says. “Our guy who put the proposal together had to guess which instructions to follow, and he guessed wrong. There’s supposed to be an appeals process, but I’m not sure how many thousands of dollars I want to put into that,” he says.

Too Great an Opportunity to Ignore

The sometimes-absurd frustrations of dealing with bureaucracy are particularly off-putting for small firms that are used to doing business with the private sector. As he waits for building weatherization projects to be bid out (one factor delaying the process is the fact that many government buildings fall under the jurisdiction of the Advisory Council on Historic Preservation), DePaola frets about what the contracts will look like.

“If they do put something out, it’ll be 8,000 pages thick and you’ll have to meet this criteria and make this disclosure. The beauty of our business is that we can sit down with a husband and wife at a kitchen table, make a sales presentation, and get a decision on a sale right then and there,” he says.

It’s natural to feel nostalgic about the simplicity of selling directly to consumers, but with the financial floodgates of the recovery program creaking open, small business owners would be smart to gear up for the learning curve involved in government contracting, says Ann Sullivan, president of Madison Services Group, a small Washington-based lobbying firm that works closely with WIPP (Women Impacting Public Policy), an organization aimed at women business owners.

“In this economy, with the sum of $787 billion and most of it being awarded in the next year, you just can’t afford to ignore it,” Sullivan says. Her organization has been doing recovery presentations for its members at conferences and regional meetings, and the reception has been enormous, she says.

Thousands of Government Contracts Each Day

Many other organizations—both private membership groups and nonprofits—are getting in on the act. North Carolina small business owner Marie Seneque says she will attend an event next month that aims to match small business owners with procurement officers from various government agencies. The event, sponsored by the U.S. Women’s Chamber of Commerce and the National Association of Small Business Contractors, is a way for Seneque to break into the contracting world.

“We are not within the big boys’ network,” says Seneque, whose company, EdComp, provides health care and education services through five full-time and 50 contract employees. She envisions her firm conducting its five-week nurses’ aide training courses for hundreds of out-of-work Americans who could then be employed at hospitals and nursing homes, where aides are needed. But although she has done some government work in the past, most of the opportunities she sees through the recovery program are not for service providers.

Still, consultant Parvey says thousands of new government contracts come up for bids every day. “There are 10,000 sales opportunities a day and 9,500 of them are estimated at $25,000 and below. If a small business could get even four of those a month, that’s pretty good,” he says, and that doesn’t count the new contracts that will stem from the recovery act.