There is no one-size-fits-all approach to government contracting. Your strategy will depend on various factors, including your industry, company strength, and past performance. Below are several strategies to consider:
Business to Government (B2G)
In the B2G model, you are the prime contractor for a government contract. This approach can be ideal once you’ve established yourself in the government space. It involves winning a government contract and delivering your products or services directly to the agency. You may or may not use subcontractors or suppliers.
Business to Business to Government (B2B2G)
In this model, you act as a subcontractor or supplier to a prime contractor who is directly engaged with the government. This strategy allows you to gain valuable experience without having to handle the proposal process yourself. You’ll have a subcontract agreement outlining your responsibilities and compensation. This can also help you accumulate past performance, which is valuable for future contracts.
Start as a Subcontractor
Starting as a subcontractor can be a practical way to enter the government contracting market. This role allows you to build experience, establish relationships, and gain a foothold before pursuing prime contracts.
Micro-Purchases and Simplified Acquisition Procedures (SAP)
Micro-Purchases (<$10K)
Micro-purchases are small transactions that usually don’t require formal bidding processes. These contracts are an accessible way to start working with government agencies and build your credentials.
Simplified Acquisition Procedures (SAP: <$250K)
SAP simplifies the procurement process for contracts under $250,000. Understanding and utilizing SAP can help you secure contracts with reduced administrative burdens, providing a solid foundation for larger projects.
Build Your Capture Team
Government Department
Assemble a dedicated team within your organization to manage government contracts. This team should have the expertise to navigate procurement processes and handle project requirements effectively.
Teaming Partners
Form alliances with other companies to enhance your capabilities and expand your market reach. These partnerships can offer complementary skills and resources, strengthening your proposals.
Board of Advisors
Create a board of advisors to provide strategic guidance and insights. Experienced advisors can help you navigate the complexities of government contracting and make informed decisions.
Build Your Past Performance
Start with Low Dollar Value Contracts
Secure low-dollar value contracts to build your past performance record. Successfully completing these projects demonstrates your reliability and helps establish a track record.
Utilize Teaming Partners’ Past Performance
Leverage the past performance of your teaming partners to enhance your own credibility. Collaborating with established firms can strengthen your proposal and increase your chances of winning contracts.
Engage in Commercial Projects
Participate in commercial projects to further build your past performance. These projects help showcase your capabilities and provide additional evidence of your competence.
Choose Profit Margins
Low Profit Margin Contracts
Opt for low-profit margin contracts to enter the market. While these contracts may be less lucrative, they offer an opportunity to gain experience and establish your presence.
High Profit Margin Contracts
Once you’ve built a solid reputation, pursue contracts with higher profit margins. These contracts can provide greater financial rewards and reflect your increased capabilities.
Understanding Government Buying Terms
Best Value
The Best Value approach evaluates factors beyond price, considering the overall value provided. This includes quality, performance, and other relevant aspects, rather than just the lowest bid.
Lowest Price Technically Acceptable (LPTA)
LPTA focuses on the lowest price that meets the technical requirements of the agency. The contract is awarded to the company that provides the lowest price while meeting the minimum requirements.
Government vs. State, Local, & Education (SLED) Buying Trends
Federal Government
The federal government typically awards 60% of contracts based on Best Value and 40% based on LPTA. Understanding this distribution helps tailor your proposals to align with federal procurement preferences.
State, Local, & Education (SLED)
SLED entities generally prefer LPTA, with 80% of contracts awarded based on this approach and 20% based on Best Value. These entities often have fewer resources and focus on cost-effectiveness.
Expanding Your Market
Focus on Your Niche Market
Start by targeting your niche market where you have the most experience. Excel in this area to build a strong reputation and establish yourself as a reliable contractor.
Expand into Parallel Niche Markets
Once you have succeeded in your initial niche, consider expanding into related markets. Leveraging your existing expertise can facilitate entry into new areas and create additional opportunities.
Coopetition: Cooperate with Competitors
Teaming Relationships
Embrace coopetition by collaborating with competitors. Many government contracts require multiple companies to fulfill the contract requirements. Forming teaming relationships can help meet these needs and enhance your competitive edge.
Long Term Strategies
Be a Generalist
Expand into Other Markets/Industries
As you build your capabilities, consider expanding into other markets or industries. Leverage your teaming partners’ capabilities and your internal resources to diversify and grow.
Emphasize Competence Over Celebrity
In government contracting, reputation and competence are more important than celebrity status. Government buyers prioritize meeting their needs over hiring well-known vendors. Building a strong reputation for competence and reliability can lead to more opportunities.
In the government market, the focus is on products or services that meet their needs. Government buyers are not impressed with how well-known a company is. Instead, they value competence and ease of doing business. Generalists often fare better because once you are recognized as a competent and easy-to-work-with vendor, government buyers are more inclined to award you multiple contracts. For instance, Lockheed Martin, the largest government contractor, excels not only in defense but also in IT contracts, winning more annually ($15 billion) than IBM ($2 billion). Lockheed also secures significant contracts in logistics and staffing. Consider which industries you can expand into based on your strengths and existing capabilities.
Choose a Strategy That’s Right for You
Legacy Corporation
- Build to Leave to Your Family: Focus on creating a business that you can pass down to family members.
- Cashflow After Retirement: Develop a model that ensures steady income to support you in retirement.
- ROI/Profit for Family Members: Plan for a return on investment that can be passed to your family.
Sell Your Business
- Contracts/Past Performance: These hold significant value and can enhance the sellability of your business.
- IP/Assets: Intellectual property and other assets contribute to the overall valuation.
- People/Staff: A skilled team can help new owners seamlessly fulfill contractual obligations.
- Brand/Reputation: A strong brand and reputation aid in winning future business.
- Relationships: Established relationships are crucial for success in the government market.
- Systems/Operational Support/Infrastructure/Processes: The effort you invest in setting up these elements adds to your company’s value.
- Profit (ROI)/Financials: You are compensated for the equity you’ve built, and new owners benefit from the financial return on their investment.
Create a Passive Revenue Stream
Government contractors often transition from project to project. Even with multi-year contracts, the need for recurring or passive revenue is essential for long-term sustainability.
3 L’s: L + L + L = L
Linear Revenue
- Quick Revenue: Revenue can be generated rapidly.
- Transactional: Involves an exchange of value, such as products for money or services for money.
- Time for Money: Requires ongoing effort and time.
Leverage Revenue – Other People’s money, time, services
- OPM (Other People’s Money): Utilize investors’ funds to grow your business.
- OPT (Other People’s Time): Earn revenue from the work of your employees, teaming partners, and subcontractors.
- OPS (Other People’s Services/Products): Resell products or services provided by others, leveraging your skills to navigate the market.
Longevity Revenue
- Passive Revenue: Earn money while you sleep.
- Recurring Revenue: Set up a system where money continues to flow with minimal ongoing effort.
- Do It Once and Keep Earning: Create something once, and income continues to come in with minor upkeep or updates.
Types of Longevity Revenue
- Informational Products / Software: Develop products such as online courses or software solutions that generate income with little to no additional work. For instance, creating an online course and selling it through your website allows you to earn revenue with no new effort once the course is created.
- Building a Brand / Systems / Name: Establish a strong brand, system, or name that sells itself. This approach can lead to ongoing revenue as your reputation and systems generate sales and income.
This can be achieved through investing or creating a product or service once, allowing you to be paid repeatedly with minimal or no additional effort.
Create Your Own Product
- Develop a Software Solution: Create a new software application to address a specific need or market gap.
- Develop a Widget: Design and produce a physical product or gadget that solves a problem or fulfills a demand.
- White-Label (Private-Label) Someone Else’s Product: Rebrand and sell another company’s product under your own label.
Government Contracting is About One Word – CONTROL
There is no one-size-fits-all approach to government contracting. Your strategy will depend on various factors, including your industry, company strength, and past performance. You need to decide which approach aligns best with your goals and capabilities. Remember, government contracting is fundamentally about the control over contracts. Once you win the contracts, many companies are capable of performing the work. If you have any questions or need more information, feel free to explore our resources.
Winning the contracts means there are plenty of other companies that can perform the work.
You will need to decide which of these strategies is right for you. If you have any questions or would like more information, check out some of our resources.
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