What is Subcontracting?

Government contracting can prove to be an excellent vehicle for growth for many struggling businesses.  However, for some small businesses or inexperienced vendors, prime contracting may be a difficult goal to reach.  Either due to the scope of the contracts or the business’s inability to meet the demands of the contract up front, entering the Federal market as a prime contractor may simply not be an option available, especially if the business is trying to recover from economic hardships.  This does not mean such firms must be excluded from the wealth of opportunities Federal contracts present; these businesses may still find success by pursuing subcontracting opportunities instead.

Subcontracting allows businesses to gain experience and build a reputation in Federal contracting.  It also gives small businesses the opportunity to successfully perform on contracts they could not handle on their own due to lack of materials, capital or staff.

Vendors awarded Federal contracts exceeding the simplified acquisition threshold must agree within the contract to offer subcontracting opportunities to small businesses where practicable.  Contract awards exceeding $650,000 ($1.5 million for construction of any public facility) also require large prime contractors to develop a subcontracting plan and provide subcontracting opportunities to small businesses.

Even when not required by law, many prime contractors will still subcontract out work to smaller firms in order to procure materials or extra staff in order to help increase efficiency and take advantage of other companies’ specialized talents.

In many cases, regulations for subcontractors are not as stringent or burdensome as they are for prime contractors.  Payment arrangements can be negotiated to allow the subcontractor to meet the demands of the contract and there are generally fewer regulatory “hoops” a subcontractor must jump through in order to meet the requirements of the law.  In this way, it can be easier for a firm to break into the Federal contracting market as a subcontractor rather than as a prime.

Filed under: Government Contracting First Steps, Government Contracting Tips, SubcontractingTagged with: , , , , , , , , , , , ,

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