Annie Eser has attended six events in two months trying to learn how to sell more services to America’s largest customer -- the U.S. government.
This year, the Washington-based science and technology consulting firm she helped found secured its first subcontract on a government project to modernize the tsunami warning systems for the National Oceanic and Atmospheric Administration. The company is part of a growing legion of firms that want to make federal contracting a bigger part of their revenue.
“We are constantly looking for new markets to enter,” said Eser, a principal at k. young consulting in Washington. “We are getting a lot of interest in the government space.”
A Commerce Department report on Friday confirmed what many owners of small businesses have felt since the Great Recession: The economy is slogging along at a frustratingly slow pace. Credit is hard to get for small companies, private-sector customers are slow to pay and spending by bigger corporations is drying up. So in this environment, working for the government, despite the bureaucracy, provides some stable revenue.
Government agencies have a mandate to award at least 23 percent of their annual contracts to small businesses. In fiscal 2015, federal contracting with small firms rose to about 26 percent, worth $91 billion. That was the highest in percentage terms in records going back to 1989. But it was a achieved in a year when total eligible contracts fell to $352 billion from $367 billion, while awards were $1 billion less than the previous year.
Both Republicans and Democrats have contested small business contract scoring by some agencies. Steve Chabot, the Ohio Republican who chairs the House Small Business Committee, and ranking member Nydia Velazquez, a Democrat from New York, sent a letter in April to the General Services Administration claiming it inflated its report on small business contract awards by excluding as much as 60 percent of total dollars spent from its pool of eligible small business dollars.
In response to the letter, the GSA said the agency is “challenged” to find small businesses with the resources to handle large construction projects
Still, annual total awards to small businesses averaged $91 billion from 2007 to 2015 compared with $58 billion in the previous nine-year period, a sign of how popular federal contracting has become.
Flocking to the federal government is done mostly out of necessity. The economy’s second-quarter growth rate of 1.2 percent was less than half the 2.5 percent expansion predicted by the median forecast in a Bloomberg survey of economists. Worse still, annual revisions showed the fifth straight quarterly decline in the year-over-year growth rate.
In good times and bad, federal agencies spend, providing a lifeline to small employer that have struggled to expand.
“When you are in commercial consulting, you can get the deals done fast but you don’t always get paid,” said Jason Beach, founder of Information Management Technologies in Arlington, Virginia, which is subcontracting on a large information technology system for a government agency he can’t disclose. Having federal contracts as part of your business “is a huge risk mitigation tool.”
An annual Washington government contracting summit hosted by American Express OPEN, the company’s small business credit card unit, was attended by 708 firms this year, the highest since 2013 when 742 companies participated, according to Rosa McGoldrick, vice president of public affairs. Of 471 firms responding to a question about firm size, 220 had between 1 and 9 employees, 118 had a business comprised of one person, while 42 had between 10 and 19 employees.
“Over the last four years there has been a significant focus on making sure that small businesses actually get their fair share of contracts,” said John Shoraka, associate administrator for government contracting and business development at the Small Business Administration. “Uncle Sam can be a great customer because they are not going to go out of business and they are going to pay their bills.”
Firms with 249 employees or less represented 46.3 percent of private-sector employment in 2015, the lowest on records going back to 1993, when they accounted for about 51 percent of employment, according to the Bureau of Labor Statistics.
“Corporations obviously want return on investment, and in lean times they are less likely to spend on things that don’t give them immediate” returns, said Janice Hamilton, founder of CarrotNewYork, an education marketing firm and prime federal contractor. Securing government contracts “was a really good anti-recessionary strategy,” she added.
Even as Federal Reserve officials have kept interest rates near zero for almost seven years, memories of the wrenching recession still are making lenders skittish about lending to small companies.
A survey by seven regional Fed banks of more than 3,000 small businesses last year found that financing success rates improved year over year. Still, “half of applicant firms reported financing shortfalls” between the third quarter of 2014 and the third quarter of 2015, meaning they were approved for less than the amount requested, the New York Fed said in its report.
The government is also a tough customer. Preparing a proposal can take days, if not weeks, a taxing job for small firms where owners and staff are focused on projects that pay the bills and administrative support is an unaffordable luxury. Hamilton of CarrotNewYork said there are times when her entire 12-person company is focused on getting a proposal out the door for a government client.
“There are so many types of acronyms -- it is like reading a book in a foreign language,” said Eser of k. young consulting. “It is a lot of work for a small firm if they don’t have access to a government contracting lawyer.”
The program is also full of targets for specific groups, including for women-owned small businesses, small businesses owned by socially or economically disadvantaged persons, and for companies located in historically underutilized business, or HUB, zones. For example, a business located in Fairfax County, Virginia, which doesn’t qualify as a HUB zone, will not qualify for an agency that is trying to meet that specific goal.
There are plenty of businesses willing to work through the bureaucratic red tape to secure reliable government revenue.
In the depths of the financial crisis in 2008, Randy Lebolo’s construction business dried up, he said. He cut two-thirds of his 18-person staff at Lebolo Construction Management in Boynton Beach, Florida.
Lebolo, a Colombian immigrant, applied for an SBA designation for minority-owned firms.
The process can take as long as 18 months. Lebolo said he plowed through the paperwork and secured the designation in eight months, and then went on the road to attend “a gazillion seminars” on government contracting in Atlanta, Orlando, Washington and other cities.
Agencies typically have designated small business contacts. Lebolo said his goal was to meet a couple and then pester them until they gave him a contract. After three months, Lebolo won his first federal job, a $150,000 project to remodel a federal court room in Fort Lauderdale, Florida.
“The good thing about the federal government: If you deliver, they pay,” said Lebolo, who is now trying to hire three or four more people to his crew.
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