Like many business owners who have suffered during the downturn, Randy Lebolo decided the most reliable client for his small construction firm would be Uncle Sam.
Thumbtack Technology’s Ben Engber, shown in Brooklyn, N.Y., Monday, says he has decided to hold off pushing for a federal government contract.
When the real-estate market was in free fall nearly two years ago, Mr. Lebolo decided to shave staff, negotiate with his landlord for a lower lease, and begin the long process of becoming certified to bid on federal work opportunities. He finally won his first government contract recently to remodel a courtroom in a Fort Lauderdale, Fla., courthouse. But the job pays just $250,000, not nearly the lucrative amount Mr. Lebolo—who says his Boynton Beach, Fla., firm had a history of multimillion-dollar commercial construction jobs before the downturn—thought he’d land.
Many small businesses are learning that it’s not always easy to get a foot in the government’s door, and the rewards might not always seem worth the hassle. Winning a government contract can require massive amounts of research, long wait times and capital—all difficult investments for a struggling enterprise.
Documentation is required to prove small-business eligibility and to obtain a number of certifications and registrations. Owners need to learn which agencies are best to target, how to write a government proposal and how to network with procurement agents.
The process requires lots of patience. On average, businesses have found that winning a contract takes nearly two years of trying, according to a recent American Express survey of about 1,500 businesses either engaged or interested in federal procurement opportunities. Some 42% of business owners who haven’t landed their first contract said they registered in the government’s procurement system for the first time within the past two years.
That means government work might not be a viable lifeline for businesses on the brink of shuttering. Despite an influx in training and networking events, some sponsored by the Small Business Administration, winning an initial contract can require more time, energy and money than some business owners can afford. Mr. Lebolo, for instance, spent months traveling the country to attend events, and hired advisers, lawyers and accountants to help him file all the necessary paperwork.
Still, the federal government is an attractive source of money for many businesses that have lost private-sector work or clients. Roughly one in five business owners who are seeking government contracts say they are doing so to counter the ebb and flow of their business, according to the American Express survey.
The federal government is mandated to award 23% of its prime contracts to small businesses every year, which amounted to $97 billion in 2009, according to preliminary data from the SBA. And contracts from the February 2009 stimulus have been particularly lucrative for small businesses, as nearly 30%, or $7.4 billion, have gone to Main Street firms.
Stimulus opportunities will continue to flow in coming years, given that only a third of allocated funds have been paid out thus far.
Mr. Lebolo is optimistic his recently won contract will lead to more. “You need to learn the [government contracting] process slowly, take a smaller job and understand what the requirements are,” says Mr. Lebolo, who has taken a few small commercial jobs to keep his firm, Lebolo Construction Management Inc., afloat. “If they ask you to paint a door, then take it,” he says.
But even business owners who are growing and interested in new revenue streams find the government-contracting process less than attractive.
A few weeks ago, Ben Engber attended an informational event in New York City sponsored by American Express OPEN, the company’s small-business division, to learn how his Brooklyn-based software development firm, Thumbtack Technology Inc., could land government projects.
“The biggest takeaway was that it’s a different world than the one I’m used to,” Mr. Engber says, adding that government agencies “want a specific service, and have set criteria to evaluate you.” With commercial work, “you can go in and explain what you do and why it’s superior,” he says.
Mr. Engber says he’d likely need to rebrand his firm and tweak his business model before diving into the process. Knowing the amount of time and energy that would take, he has decided to hold off on pushing into the federal arena, especially since his company is growing in other areas, he says.
Mr. Lebolo, however, is shifting his firm’s strategy to primarily focus on government work. “I made a determination to look hard into the federal market because it was the only place with money,” he says.
He says he’s not frustrated by the relatively small price tag of his first government assignment. Now that the process of landing a contract is behind him, he says there is no going back to commercial construction. He hopes to grow and begin hiring again by the end of this year. “This is a long-term decision,” he says.
– Katie Orlinsky for The Wall Street Journal – 4/21/2010