Small Business, Big Wins: Small Businesses and Government Contracting

Advantages Held by Small Businesses. There is no shortage of advantages that can help small businesses hold their own over larger businesses when obtaining government contracts. While not inclusive of all advantages, the list below highlights some of the more common benefits that small businesses receive.

1. Set-Aside Programs. One of the most notable advantages is the small business set-aside programs, where a percentage of government contracts are exclusively reserved for small businesses. This not only reduces competition but also levels the playing field, enabling smaller firms to compete against larger corporations for lucrative contracts.
2. Simplified Bidding Process. The bidding process for government contracts can often be cumbersome; however, small businesses may benefit from simplified processes, particularly for contracts below a certain dollar threshold. These simplified procedures reduce barriers to entry, making it easier for small firms to secure contracts without the extensive resources often required by larger businesses.
3. Financial Assistance and Resources. Small businesses can access various forms of financial assistance, including grants, loans, and incentives aimed at boosting their ability to bid on and fulfill government contracts. Organizations like the Small Business Administration (SBA) provide resources and guidance tailored to help small businesses navigate the complexities of government contracting.

Small Business Criteria. To qualify as a small business for the purpose of government contracting, the business must meet specific criteria established by the SBA. There is no certification process for a “small business” or a small disadvantaged business, as these types of business can self-certify. Other types of businesses, however, such as Veteran-Owned and Service-Disabled Veteran-Owned Small Business must apply for certification through the U.S. Department of Veteran Affairs; and Women-Owned, HUBZone, or 8(a) Small Business must apply for certification through the SBA. The SBA establishes small business size standards on an industry-by-industry basis. Generally, these standards review:

1. Size Standards: The SBA defines size standards based on the industry, often measured by average annual receipts or the number of employees. For most industries, a business must have fewer than 500 employees, but some sectors have different thresholds.
2. Independence: The business must be independently owned and operated, not be dominant in its field, and must adhere to the SBA’s regulations.
3. Location and Legal Structure: The business must be organized for profit and located in the United States. Additionally, it must be a sole proprietorship, partnership, or corporation.

Setting Up Small Businesses. Given the self-certification process and advantages small businesses have in obtaining government contracts, many existing companies strategically establish related small businesses to enhance their chances of securing government contracts. Businesses must put some deliberate thought to this endeavor, as it may take some time for a contractor to win its first government contracting bid. Businesses commonly follow these general guidelines when establishing an entity to secure government contracts:

1. Identify Complementary Services: Existing businesses should analyze their operations and identify areas where they can spin off smaller firms that provide complementary services. This could enhance their overall competitiveness in government contracting.
2. Utilize Existing Resources: Leverage the resources, expertise, and networks from the parent company to support the new small business. This includes access to funding, technology, and skilled personnel.
3. Focus on Niche Markets: New small businesses can target niche markets within the government contracting space, allowing the existing company to diversify its offerings and capture more contracts.
4. Engage in Joint Ventures: SBA requirements generally permit two or more small businesses to pool their efforts by forming a joint venture. That joint venture can still qualify for small business set-aside contracts, provided that its documentation meets SBA requirements. Forming joint ventures with other small businesses can enhance capabilities and qualifications, making it easier to bid on larger contracts together.
5. Develop a Capabilities Statement: Create a clear and concise capabilities statement that outlines the business’s strengths, past performance, and relevant experience. This document serves as a marketing tool to showcase its qualifications to potential government clients.
6. Performance Limitations: Small businesses must keep abreast of the additional regulatory requirements applicable to work performed under small business set-aside programs, such as the restriction on subcontracting for many contracts secured under these programs.

Conclusion. The landscape of government contracting is ripe with opportunities for small businesses. By understanding the advantages available and the criteria for qualification, as well as leveraging existing businesses to create new avenues, small enterprises can effectively tap into this lucrative market. With the right strategy and preparation, small businesses can not only survive but thrive in the realm of government contracting.

Robert A. Pleines, Jr. is a managing associate in the Group and may be reached at 216.363.4491 and rpleines@beneschlaw.com. 

Christopher C. Razek is an associate in the Practice Group. He may be reached at 216.363.4413 and crazek@beneschlaw.com.