Expensive Learning Curves for Small Business Federal ContractorsBy Simone Sander, Consultant, EL Cassandra

Federal construction was once a lucrative business prior to the 2008 financial crisis and the decline of the economy. As business loans came to a slow trickle, registration of private sector construction firms into the CCR federal vendor data base (SAM) started to pour in. In 2012, I was more surprised at the 49 competitors on a coveted MATOC award than I was in the announcement of our actual win. As the competition became steeper and the margins slipped lower and lower, the learning curves became more and more expensive. Here are a few of my favorites from a very long list.

1. The Friends and Family FiascoThe number one trait that is very vital to someone starting a small business seems to be trust. Hiring people that you trust instead of hiring people with experience can cost your company much more than the $20,000 a year that was saved on salary. The company could outgrow the experience of family and friends quickly, leaving the business owners with only one remedy - firing family and friends.

2. Lack of Standardized SystemsAs friends and family began to populate a small business, they are often empowered to begin to develop their own tools to manage their own work. As the company grows, the data is then scattered in various Access data bases, Quickbooks, Sharepoint, mismanaged filing systems, and excel sheets that don’t sort or link. It is only years later when a very important file is found in “Brads Docs” that the company realizes the data management issue. Accounting and Marketing departments will have different information on change order or final contract amounts. The original documents will have to be pulled and reviewed. A wild goose chase begins when the RFP requires the names of subcontractors for a project and the amounts they were paid. Not only is this research time expensive, file cleanup will be confusing and costly. Knowing what to keep and what to throw will be almost impossible as people may have come and gone.

3. Desired Profit Margin vs What the Market will BearThere will always be a financial advisor whispering in the business owner’s ear, telling them what profit margins are required to survive as a business. A cold slap of reality may hit when a bid abstract reveals that the price was not even close to the competitive range. Distributor pricing, salaried in-house employees, education programs, and affiliations, are just a few of the strategic pricing tactics that are used world-wide. Without trending your competitors pricing and developing strategies for getting your company into the pricing range, you may exhaust countless marketing dollars without a single contract.

4. No Chain of Command. Small business owners are typically involved in the day to day activities of the company giving them instant access to employees on any level. Without proper chain of command, proper planning and priority setting can be greatly compromised. Additionally, a senior employee can’t exercise proper decision making over a junior who may be a stronger lobbyist when it comes to making a point. In

federal contracting, what seems logical is not always so. Only a senior decision maker can prevent costly mistakes made by teams. Small business owners can mitigate risk by hiring someone whose experience they trust and empowering them to make the right decisions.

5. Shopping your Subcontractors. If a small business owner consistently uses his favorite subcontractor and asks for competitor bids to keep him in line, it won’t be long before the estimator is stating “No Sub Coverage”. With deal killer per diem cost on long term and out of state projects, a decision to utilize local subcontractors may be the only strategy to win. Subcontractors will begin to assign their estimating resources elsewhere if they do not perceive that their efforts with your company will bring results. If you have attended a pre-proposal site walk in the past, you may have noted that people talk! When a company gets a reputation for mistreating subcontractors with shopping, slow payment, or various other tactics, the small business owner will find that they are high and dry in the federal arena.

6. Cookie Cutter ProposalsWe all have “highly experienced personnel”. Except for maybe the marketing and proposal girl whose sister works in accounting. Her inability to understand and compare the scope of work to previous company experience will cost a small business the “win” time and time again. “A hydrologist wasn’t the right resume for this parking garage? They said Civil Engineer!” The proposal writer and estimator must understand federal contracting and your service line with ALL of the details from pulling together a team, staffing and scheduling a project, or vetting out subcontractor numbers. When small business owners cut corners for staffing the proposal and estimating team, their business is in the hands of third graders.

7. Oh Those Shifty Contracting Officers!Not all Contracting Officers choose their favorite contractors, but there are many that will work the paperwork so that they can. If a small business is not able to identify Contracting Officers that are truly interested in their services and spend their resources in the right areas, only low-balled IFB price proposals will have their name on it. I recently saw a contract that announced a typo and corrected that it was NOT a Service Disabled set-aside, but a Woman-Owned. This was done after the site walk a week before it was due. That was some typo! You had to wonder if someone sent in a really attractive female business owner. Knowing when to cut losses and move your marketing resources to another area can save a company from sinking.