10 Steps to Becoming a Federal Contracting One Percenter

In 2010, the United States Federal Government was the largest single purchaser of goods and services in the world, at $540 billion in contract value procured. By 2015, contract spending was reduced by 20% ($102 billion) to $438 billion in contract value. Still, even after that massive cut in spending, the federal government was and remains the largest purchaser on the planet. By 2022, contract spending increased by 60% ($264 billion) to $702 billion.

How Does Private-Sector Purchasing Power Compare?

According to the Census Bureau 2019 Capital Spending Report, to exceed the purchasing power of similar goods and services by the federal government, you would have to roll up the combined purchasing power of seven market sectors made up of thousands of individual companies:

• Hospitality - $35 billion: Hotels, Restaurants
• Healthcare -$93 billion: Hospitals, Social Assistance; Nursing and Residential Care Facilities; and Ambulatory Healthcare
• Management Consulting - $6 billion
• Professional, scientific, and technical services - $36 billion: Legal Services; Accounting, Tax Preparation, Bookkeeping, and Payroll Services; Architectural, Engineering, and Related Services; Specialized Design Services; Computer Systems Design and Related Services; Management, Scientific, and Technical Consulting Services; Scientific Research and Development Services; Advertising and Related Services; and all other Professional, Scientific, and Technical Services.
• Information Services - $123 billion: Publishing, Motion Picture and Sound Recording Industries; Broadcasting; Telecommunications; Data Processing; Hosting; and Related Services
• Transportation and Warehousing -$93 billion: All transportation by Air; Rail; Water; Truck; Transit & Ground Passenger; Pipeline; Scenic and Sightseeing; plus Transportation Support; Postal Service (FedEx/UPS); Couriers and Messengers; and Warehousing and Storage.
• Retail - $77 billion

So, is it easier to do business with the federal government because they spend more money among their 84 departments and agencies than any other entity on the planet?

The answer is YES and NO.

Yes, because the US federal government may be among the most transparent buyers in the world. The amount of information a diligent marketer can gather about the issues, needs, requirements, and individual purchasers can be overwhelming. Government sources of information include sam.gov (formerly FPDS), USA Spending.gov, the Government Accountability Office (GAO), the Small Business Administration (SBA), and virtually every one of the 84 agency websites. The beta.sam.gov website posts all unsecured requests for proposals (RFP), sources sought notices across all departments and agencies, and contracts and competitive data. Everything you need to succeed is out there if you know where to look. But here’s the rub: unless you have dedicated staff to sift through the mountain of information, there may be too much information for the uninitiated vendor – somewhere between finding a needle in a haystack and a needle in a stack of needles. The good news is that there are a number of vendors like GovWin, Bloomberg Government, or GovTribe that will do the sifting for you – pick the one that works best for you and get on a first-name basis with their analysts.

If your company has a socioeconomic status that qualifies for purchasing set-asides based on size, ethnicity, veteran status, gender, or geographic location, there’s more good news. Most agencies have small business liaison offices chartered to help you find business opportunities in their agency. Some even have mentor protégé programs that pair you with a “big brother” company to help you get started. Also, you must register with the SBA to avail your company of the full spectrum of services and benefits your socioeconomic status provides.

Finally, one of the best things about government contracts is that because of the high level of effort and expense required to establish a contract on both sides, they typically span multiple years (2 to 10 years.). These “annuity” contracts make the extended sales cycle worth the effort for the vendor by providing a stable and predictable base of revenue and for the government by locking in predictable prices and levels of services. Win-win!

No, because long sales cycles, ponderous bureaucracy, and fierce competition introduce cost and risk to the equation. Depending upon the scope of the product or service, a federal contract can take anywhere from 6 months to 2 years to traverse the maze of approvals for budget, scope, and requirements before the final phase in the procurement office, where the solicitation process kicks off. For the newbies out there, if you’ve never responded to a federal Request For Proposal (RFP), suffice it to say that it is hard (very hard) to do.

If you can’t afford to write-off the B&P cost, don’t bite-off more than you can chew.

Even when you do everything by the book, success can still be elusive. Winning a federal contract is like baseball - if you hit 1 out of 3, you're going to the Hall of Fame. And sometimes, you'll find yourself playing a "no-hitter." For example, not long ago, I worked on a proposal where, after more than a year of capture effort, the government issued an RFP for a 5-year contract with an estimated value of over $85 million with 30 days to submit the response. The challenge was that even though we knew precisely what the government wanted to buy, the requirements and instructions in the document appeared to be cut and pasted together from previous RFPs. The result was that the RFP was so confusing that the due date had to be pushed an additional 90 days because of the avalanche of questions from the bidders. The ill-fated solicitation finally collapsed when the proposals received were so far apart that a fair market comparison was not possible, so the solicitation was canceled. My $300K bid and proposal (B&P) cost was a write-off, just like it was for the other half dozen or so vendors.

The first takeaway is that if you can’t afford to write off the B&P cost, don’t bite off more than you can chew. Second, if you don’t have a seasoned proposal manager on staff, get outside help or at least get training - otherwise, proceed at your peril. It’s no accident that a prolific and thriving industry provides proposal support services to the government vendor community – take it for granted that all of the top 100 vendors have dedicated copywriters, graphic artists, and proposal and capture managers on staff.

The capture process for larger opportunities can be prohibitively expensive because of the resource requirements and risky because of fierce competition - you’re likely to lose two out of three pursuits. According to USASpending.gov, the top 1% of nearly ten thousand federal contractors win more than half of the contracts (57% in FY22). The remaining $303 billion in contracts is distributed amongst the 9,900 vendors (the hapless 99 percenters). So if we assume an average PWin of 33%, there are likely around 30,000 vendors actively competing for federal contracts.

“Good enough” is not good enough if you want to find your way to the top 1%.

The best way to improve the probability that you will be among the 10 thousand or so vendors winning federal contracts each year is to do everything right. “Good enough” is not good enough if you want to find your way to the top 1%. Assuming you have not developed the latest and greatest disruptive tech that every agency is lining up to acquire, you will need to displace 99% of the active vendors in your industry as you move up the food chain.

It may sound daunting, but new players entering the market do it all the time. The thing you have working in your favor is the volatility of the vendors outside of the top 100. According to the SBA, attrition will do some of the work for you. The reality is that only about half of all new companies survive five years or more, and one-third of those survive 10 years or more. The challenge is that failing businesses are replaced by new businesses each year on a nearly 1:1 basis.

Another and equally important element of volatility is acquisition. According to the 17th Annual Government Contractor Industry Survey Highlights Book published by Grant Thornton in 2011, 67% of the privately held companies moving up the food chain have stated exit strategies to sell their companies, and that percentage seems to have held. That’s great when they sell, but in the meantime, those movers are your competition because, more recently, 69% of companies walked away from M&A deals after the due diligence process (Grant Thornton's 2015 Government Contractor Survey). They have figured out what it takes to succeed. Your goal should be to emulate them, but just a little better.

So what does better than good enough look like?

Success in the federal market, or any market for that matter, requires the development of an efficient and proactive organization that can anticipate and mitigate deviations in the plan. To do this, you will need a strong sense of your strengths and weaknesses – emphasize the former and mitigate the latter. Those who have been on a cruise ship know that one of the first things they do when you’ve boarded, and they’ve told how much fun you’re going to have is to show what happens in the event of catastrophic failure – the lifeboat drill. That may be extreme for your business, but you need to have procedures in place for all contingencies, good and bad. When all else fails, ask yourself, "What would a 1 percenter do?"

1. Financial wherewithal to execute government orders.

• Defense Contract Audit Agency (DCAA) Compliant Financial Management System: It doesn’t matter whether you’re pursuing DoD business. The DCAA protocols are the accepted standard. They perform contract audits for both the Defense Department and many civilian agencies. You’ll be glad you have it if an auditor shows up at your door, but be equally glad when you’re asked to justify your cost+fixed fee contract pricing. 
• Pricing: Determining your pricing and cost structure should occur well before you have an RFP. This is critical in the face of the emergence of source selection based on “Lowest Priced Technically Acceptable” (LPTA). It doesn’t matter that your people have more experience or your technology is superior – if your competition is able to "answer the mail" at a slightly lower price point, they win (drop the mike here). The key is to develop a mastery of your cost structure so that when writing a cost proposal, you can focus on a competitive pricing strategy that will win without putting you underwater.

• Lines of Credit: This is important if your plans include significant growth. For example, major capture and proposal efforts can incur expenses into tens or hundreds of thousands of dollars or more in some cases, and none of it is billable or recoverable aside from a potential tax write-off. You may also need a buffer if you win a large contract that creates significant out-of-pocket preparation costs.

These are all things that the government may look at when making an award, and in some cases, lines of credit are required in the RFP.

2. Contract Management

• Understand and comply with Federal Acquisition Regulations (FAR). You don’t need to memorize all 1,850 pages, but you should keep it handy for reference.
• Develop or purchase a contract management system that tracks scope, time, and money. All good pilots know "you don’t want to run out of altitude or ideas" when things go wrong. As a government contractor, you don’t want to allow scope creep to force you to run out of time or money. If you have sold the government an outcome, the fact that you’ve exhausted all your resources doesn’t matter – you’re still on the hook to deliver. Defaulting on a government contract is a "third rail" situation that could expose you to civil and procedural penalties that may include debarment from government contracting.
• Stay on top of the contract reporting requirements of your contract vehicles as they accumulate. Failure to comply can result in the cancellation or suspension of contracts and potentially impede the acquisition of new business.
• Register in the System for Award Management (SAM) database to make your information available to the federal procurement community.

3. Past Performance

• Your offering must be successfully deployed elsewhere in government or the private sector, preferably within the past two years. The government goes to great lengths to mitigate the risk of failure in the source selection process. Expect your company and your offering to be vetted qualitatively and quantitatively. I also encourage you to get letters of recommendation from all your customers, preferably while they are still customers (more likely to give you a positive reference). Tip: Interview your customer to draw out positive feedback and write a draft reference letter for their approval and signature, especially after a major deliverable. So long as your pre-written review sticks to the facts, the customer will appreciate not having a writing assignment and you’ll get your reference letter more quickly. Win-win!

• When submitting a past performance qualification, take the time to make it relevant to the work you are proposing. If this seems obvious, congratulations, you’re thinking like a one-percenter! A surprising number of vendors cut and paste the same tired past performance over and over, word for word (bless their hearts).

4. Concise Use Cases

• Use cases must be written with an emphasis on the value provided. It’s like sausage, I don’t need to know how it’s made, I need to know that it’s delicious. Simply put, a typical use case should (a) state the business problem to be solved, (b) describe the highlights of the solution applied, (c) the result realized by the customer, and (d) how that solution may be relevant to similar business problems. 

Tip: Forego the use of acronyms to improve the potential for the use case to be relevant to the broadest cross-section of buyers possible!

5. Value Proposition

• Your value proposition must become a part of your brand. Think like a one-percenter and consider outside help to provide an objective view of your offering as it compares to the market. What you believe to be important may mean little to the market. Let’s face it: your business is like your family - you’re probably too close to be objective. 
• Demonstrate how your offering will help the government perform its existing mission faster, better, and cheaper with the least risk (i.e., why are you better?). You’ll need business development support here to get the customer's perspective so that your value proposition is so clear, concise, and intuitive that it can be easily understood and will resonate without a lot of explanation.

• Differentiation is the goal. This can be a challenge if you are offering services. The one-percenter approach is to productize offerings into packaged solutions that use established methodologies or a suite of methodologies to address specific high-value business problems.

6. Establish GSA schedule contracts (GWAC)

This is a layup, but the process can take up to a year. Get it done. Having at least one GSA schedule contract is critically important as you get established in the government market because it makes it easier for government clients to contract with you. But don't stop with one - get established on every GWAC you can qualify for. If you don't qualify, find a Prime willing to add you to their contract, but be prepared to trade "value-for-value."

7. Business Development Planning

• Use all of the information resources mentioned in this article to determine which select group of agencies have the most need and ability to contract for your offering. Focus on the few where you think you have the highest potential to penetrate.

• Once you’ve selected your targets, start your plan by detailing how you will accomplish goals – emphasis on detail, so take the time to be specific. Your plan is almost complete once you have answered every possible “who, what, when, where, why, how, and how much” question. Now, you need to identify the likely risks (what could possibly go wrong?) and your mitigation steps. Think of it like a project plan where you have to map out date-specific steps (milestones) toward winning a new business (specific outcome) using your company's internal resources (project team). This method works but requires discipline to regularly document and report progress against the plan throughout the year.

8. Teaming Strategy

• Developing teaming strategies to establish government “beach-heads” is critical. It’s difficult at best to win a federal prime contract if you have no federal contract experience. I’m not saying it can’t be done, but I would compare it to hitting a hole-in-one if you've never played golf before - it is possible. The answer is to develop a teaming strategy with one or more vendors (one per agency, please) where your offering fills a gap or complements their offering to benefit both. 

• If you are a small business, set up an appointment with the Office of Small and Disadvantaged Business Utilization that supports the agencies you’re pursuing. They will be able to help you identify opportunities and potential teaming partners that are active in their agency and, in some cases, provide personal introductions to relevant procurement personnel!
• If you are not a “small business,” open up your network and roll out your value proposition relevant to specific opportunities. I hear LinkedIn is helpful.

9. Engaged Workforce!

 If you are a small to mid-sized services-based company, staff attrition can be a problem if not managed effectively. This is especially true if you have onsite projects where your staff reports to work at a government facility where other contractors may be co-located. The answer is to stay connected with your team and keep them actively up to speed on company-wide achievements. For example:

• Communication - Publicize the achievement of major project team milestones or initiatives, upcoming opportunities, and other newsworthy information.
• Recognition – Highlight and reward exemplary performance
• Incentive – Offer incentives for leads that produce new business.

10. Repeat steps 1 through 9 until every agency you want to do business with knows who you are, what you do, and has included you on their shortlist of top 1% preferred vendors!

 About the author:

Tom Miller recruited, developed, and led elite teams of sales, business development, capture, and marketing professionals in the public sector and Fortune 100 market space that consistently exceeded expectations for more than 20 years.