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Do You Have What It Takes to Be a Government Contractor?

Filed under Government Contracting. Fact checked on May 24, 2012.

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Your business should have certain resources, finances, equipment, and computer skills in order to do business with the government. In addition, your business must meet the definition of a small business for purposes of special government contracting programs.

How do you know if you are ready to begin doing business with the government? Do you have the "right" resources, finances, equipment, computer skills and whatever else it may take? Here's a chance to find out. We'll tell you what you need and then give you the opportunity to rate yourself so that you can better see where you stand and in which direction you need to be moving.

Can Your Business Handle a Government Contract?

One question that often plagues small business owners at the start is," Is my business big enough to handle a government contract?" Actually, there are many companies with fewer than five employees that have received a contract. In fact, some companies that have only one person in their entire operation have been awarded a contract. In one case, it kept the owner busy for an entire year and amounted to his total year's salary!

Characteristics of successful government contractors. Size is not necessarily important. Just about any business, regardless of size, has the potential to get a contract with the government. But which companies stand the best chance of actually getting a contract? The answer is simple; any business that sells a product or service and is:

  • responsible
  • competitive
  • patient in dealing with the bureaucratic process
  • committed to invest and apply the resources that are needed to market to the government
  • technologically proficient and adaptable to new business models

The next question you may be asking yourself is that while you may not be a big business, are you considered a small business for government contracting purposes?

How small is small? The United States Small Business Administration establishes the size standards used to identify a company considered small. The standards define the maximum size that an enterprise, together with all of its affiliates, may be if it is to be eligible for federal small business programs. As a general rule, a small business is one that:

  • Is organized for profit
  • Has a place of business in the United States
  • Makes a significant contribution to the U.S. economy by paying taxes or using products, materials or labor
  • Does not exceed the numerical size standard for its industry

Maybe that definition leaves you scratching your head. Here is another "rule of thumb" to use. If you deal with a product (i.e., manufacture, deal, or distribute), then the size standard is based on the average number of employees over a 12-month period, typically 500 or less. If you are in a service industry, then the standard is based upon the average annual sales over a three-year period, ranging in dollars from $750,000 to $28.5 million.

SBA size standards. The following chart, which you also can find on the SBA web site, will help you decide where you fall. Just remember this is a summary of industry groups. Go to the SBA website, for more detailed information. A business in one of the following industry groups is small if it is not greater than the size standard indicated.

In late 2005, the SBA adjusted its dollar-based small business size standards, which are based on receipts, net worth and financial assets, to reflect inflation that has occurred since February 2002, when SBA last adjusted them for the same reason. Since the February 2002 inflation adjustment, prices have generally increased 8.7 percent. SBA increased the familiar "anchor" size standard from $6.0 million to $6.5 million. Size standards that are higher than $6 million also reflect similar percentage increases.

SBA Small Business Size Standards
Company Classification Criteria
Manufacturing 500 employees
Wholesale Trade 100 employees
Mining 500 employees
Retail Trade $7 million
General and Heavy Construction (except Dredging) $33.5 million
Food Services $7 - $20 million
Special Trade Contractors $14 million
Computer and Electronics 500 - 1,000 employees
Business and Personal Services, except: $6 million
-- Architectural, Engineering, Surveying and Mapping Services $4.5 million
-- Dry cleaning and Carpet Cleaning Services $4.5 million
For specific size standards, refer to the size regulations in 13 CFR sec. 121.201 or 48 CFR sec. 19 or the table of small business size standards.

SBA issued an Interim Final Rule on December 6, 2005, and the revised size standards took effect the same day for its loan programs. For federal procurement, the new size standards become effective on January 5, 2006.

For more information about SBA's increase to its small business size standards for inflation, please see refer to the SBA's inflation information.

If the size of a business exceeds the size standard for its overall industry classification, it may still be a small business under the North American Industrial Classification System (NAICS) code, (pronounced "nakes") for that group. Some industries have higher size standards than the general one for the entire industry group. SBA has a Table of Size Standards on its web site at www.sba.gov. The SBA uses NAICS codes to identify industrial categories and make size determinations. Just remember that the SBA does revise the size standards from time to time based on changes in the data used to determine size.

Size Factors, Ownership Affiliations, Technology and Financial Resources

Your company's official status as a small business is also affected by ownership affiliations. Certain contractual arrangements with larger companies may disqualify eligibility. What this means is that if you are a business that is owned/held by a "large" business, you are a large business. This is to ensure a level playing field and fair competition among small businesses.

The SBA defines affiliates as:

Affiliates - Affiliation with another business concern is based on the power to control, whether exercised or not. Such factors as common ownership, common management and identity of interest (often found in members of the same family), among others, are indicators of affiliation. Power to control exists when a party or parties have 50 percent or more ownership. It may also exist with considerably less than 50 percent ownership by contractual arrangement or when one or more parties own a large share compared to other parties. Affiliated business concerns need not be in the same line of business. The calculation of a concern's size includes the employees or receipts of all affiliates.
Work Smart

While you can use these general standards to make an educated assessment, only the Small Business Administration has the authority to make an official size determination. Anyone can challenge a company's size declaration, but it is the SBA that will settle the issue.

Be An Innovator

Again, the important thing to remember is that it doesn't matter whether a company is classified as large or small. The companies that successfully sell to the government are the ones that do their homework and "keep at it," while companies that just "give it a try" almost never succeed.

Let's say the government is looking for an item - you have a better way or process. Don't just sit on the sideline. Get out and sell yourself. Now, when is the right time to be innovative? Well, it's not with that "bid on the street," the last thing you will want to do is try to get a contracting officer to "change the SOW" or specs. You will not be making their life easier and you may, if you persist, lose any opportunity to really talk about your idea. The best time, is inform the buyer that you have something that will make their life easier, and after the bid is awarded, you get some face time with the technical people, contracting officer and whoever else you can, explain to them that you have found a way to make the "widget," better, faster, cheaper. They will appreciate your professionalism and, in most cases, work with you to get any improvements in place. (Note: this does not work all of the time; people are people, and you have to market to them the same way you do the commercial market.)

Example

We know of a contractor that helped a buyer by sending a form with all the information the buyer would need to prepare a good quote, along with his company information and point of contact printed on it. The buyer made copies of the form and gave it to the other buyers as well. Be helpful if you see a better way and work with the government. If you do have a better way you may be surprised at the "payoff."

Your Financial Resources

What is the financial situation of your business? Is your business financially stable or are you just starting out and short on cash flow? Are you able to make payroll and other payments with no problem? In other words, is your business financially healthy?

If you are in financial trouble, a government contract would be more likely to put you out of business than to save your business. We have seen many companies that want that million-dollar contract, but the worst thing that can happen is to get one and not be prepared for it. Still, there are ways to work with other companies, even your competition, to get more purchase orders.

Example

Small business owners primarily look to their own personal resources for capital. The predominant sources of financing are:

Small business owners themselves 41%
Cash advances from personal credit cards 36%
Personal lines of credit 25%

Do You Have a Quality Assurance Program?

The terms of a government contract generally require you to assure the quality of the product or service that your business will be providing. To do that, you need to show that you have some kind of formal, documented quality control plan in place.

Your plan could consist of anything from a general quality assurance manual to a full quality assurance program that complies with a recognized commercial quality standard, a government standard, or the international ISO standard for your industry.

To be ready for the government, you need to be sure you have the proper office skills. You need to be organized, maintain accurate files and records, document important transactions and meetings, know where everything is, and generally be able to keep things humming.

The Right Technology Is a Necessity

We can't stress enough the importance of this area. Simply put, if you are not capable of doing business using some kind of electronic commerce (e-commerce) or electronic procurement (e-procurement), you will not be doing business with the government.

Why? Because the law, beginning with the Government Paperwork Elimination Act of 1995, requires the government to use electronic means to issue and award small business contracts, specifically those between $2,500 and $100,000. Furthermore, in a continuous effort to streamline the procurement process, government buyers are using new options in making purchases, such as multiple-award schedules, purchase cards, reverse auctions, etc., almost all of them technology-based.

The goal of electronic procurement is to allow the exchange of information, such as purchase orders, invoices, or shipping notifications in an electronic, paperless format. The benefits for the government are the elimination of manpower costs associated with processing paper, reduction in errors, and speeding up the process of ordering and paying for goods and services. You can now get government bids automatically sent to you via e-mail, decide which ones you want to bid on, download the technical information from the Internet, and then bid on the requirement without using one sheet of hard paper.

In order to do business with the federal government, you must have the following at your disposal:

  • A computer running on an up-to-date Windows, Linux or Macintosh operating system  — The faster and more processing power you have in your computer, the better off you will be. If you are in the process of shopping, we encourage you to buy as much RAM (or memory) as you can afford, but don't get carried away with extras you don't need for business. Remember that you want a computer to satisfy your business needs, not for multi-media or games, unless of course this is your business.
Work Smart

If you are waiting for the next "best" or "latest" thing before you buy, grit your teeth and go ahead and get the one that's best for you now. There will always be something better or newer. And while you wait, opportunity passes you by.

If you are not moving into new technology and new ways of doing business using e-commerce and the Internet, consider taking classes or attending workshops and conferences on these subjects. In this day and age, keeping up with and knowing how to use new technology in your business is crucial to your success.

  • An Internet connection  —A DSL line or technology, such a wireless connection, giving you high-speed Internet access—a big plus when it comes to downloading large files. Also consider the services offered by your ISP, including reliability and security measures.
  • Internet protection  — If you use either DSL or broadband, you also need to set up protection for your system with good anti-virus and firewall software. This software reduces the chances of getting hit with a virus or by a hacker. Remember, with a DSL or broadband connection, you are always connected to the Internet, so system security is an issue.

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