Small minority-owned firms are winning as many federal contracts as their mainstream counterparts, but are doing so at higher costs. According to a recent study by American Express OPEN, Women and Minority Small Business Contractors: Divergent Paths to Equal Success, 38% of some 740 active small-business contractors surveyed received $1 million or more in federal contracts since entering into the federal procurement marketplace, compared to 37% for minority-owned firms. About 17% of all small business contractors garnered $10 million or more in federal contracts compared to 20% for small minority contractors.
But such growth comes at a cost, particularly for minority-owned firms. The average small firm spent $103,827 in 2010 on costs associated with securing federal contracts, such as cash outlays for staff, networking events, and training. Comparably, minority-owned firms spent an average of $139,709–35% more–in 2010.
It also takes minority-owned firms
longer to get their first big win. The average small business contractor reported 16 months and 4.4 unsuccessful bids before getting their first contract, while minority contractors reported on average 20 months and 6.1 unsuccessful bids. Industry insiders suggest that part of the reason it takes so long is because there is a huge learning curve in federal contracting.The U.S. government is the world’s largest single purchaser of goods and services, spending more than $535 billion on contracts last year. The federal government has a target of spending 23% of its procurement budget with small firms, including 5% with minority-owned businesses.
There are many benefits to selling to the government. Federal contractors typically grow larger than other types of small businesses. A wealth of procurement opportunities is what spurred Hester Taylor Clark, president of strategic communications and program management firm Hester
Group, to begin exploring federal contracting in 2008. By 2011, Hester Group had scored its first big wins: a $4 million contract with the U.S. Food and Drug Administration and a $2.5 million contract with the U.S. Navy, both for more than three-year periods. After securing a contract, growth can happen very quickly, says Clark. “You are servicing the country so the demands can be intense.â€(Continued on next page)
The Hester Group opened a small office in Alexandria, Virginia, where Clark commuted between the business’s headquarters in Jacksonville, Florida, and the Washington, D.C., area. “There is a whole vernacular and process you have to teach yourself,†says Clark. Three or four times a week, Clark would attend small business learning opportunities, such as SBA seminars, networking groups, and webinars. She also attended events for small businesses that were hosted by federal
agencies. “That became my day job. I would work on [current projects] at night,†she says. The tenacious work paid off as Clark’s firm secured federal contracts during the economic downturn despite the fact that bidding activity has decreased in recent years.Indeed, there are fewer opportunities as many agencies have cut spending. Agencies are also bundling more procurements into larger contracts, “which sometimes puts a contract out of reach for small businesses unless they band together,†says Julie Weeks, American Express OPEN research adviser and president of the Empire, Michigan-based business research company Womenable. Although all small businesses are bidding less, minorities have had a higher success rate on contracts they have bid on in recent years. Overall prime contracting success rates dropped 8% between the 2007—2009 and 2008—2010 periods. However, minority-owned firms have seen a 10% improvement in their success rate
during that same time, reports American Express OPEN. From 2008 to 2010, small minority contractors submitted an average of 12.7 bids for prime federal contracts compared to the average 10.3 bids submitted by all small-business owners.Clark has learned to keep an eye on current contracts that her company is interested in. “Every federal contract has an end date, so you begin watching that contract and seeing what they’re doing and you prepare yourself,†Clark says. “If you’re weak in one area you begin to strengthen yourself.†This way you have two or three years to prepare rather than three or four weeks after the request for proposals (RFPs) is posted, she adds.
“There will always be good opportunities for businesses in the federal procurement market because agencies continue to have to get outside help to buy goods and services,†says Weeks.