Outsider Perception: Most federal business is conducted with direct contracts between the end users and the vendor.

Reality: A large amount of federal business is done through commercial subcontracts with federal prime contractors. Lesson: Subcontracting is a valid way to close a sale when your business doesn't have another method to do so.

Background:

Companies which don't have pre-approved federal price lists usually have to start out as a subcontractor to a company that already has a contract with the federal agency. These insiders are commonly called "prime contractors." Assuming they want to do business with you, contracting officers can elect to have one of their existing prime contractors execute a subcontract with your business as a way to close a deal under the rules. For example, your company could sell a product or service to an end user at a particular agency and the agency may decide that the best way to close your sale is through a subcontract with a trusted prime contractor (as opposed to going through a lengthy and expensive public bid process).

The contracting officer may also elect to put you in contact with a small business which holds a preference certification (such as a Section 8(a) small disadvantaged business certification) because the government can sole source to this type of business if the transaction is under $3 million. Under this scenario, a new contract would be executed with the certified small business and your company would become a subcontractor under the new preference contract. Convoluted as it may sound, many federal sales are closed using commercial subcontracts.

Subcontracting is a valid way to close a sale but it has drawbacks. The primary drawback is that a subcontract with a prime contractor doesn't give you that critical first step toward achieving insider status. When acting as a subcontractor, you do not have a contract with the federal government. Instead your business has a commercial contract with the prime contractor. The prime contractor controls your company's prices, your sales growth, and your destiny with the federal customer. A savvy prime contractor also insulates the federal customer from its subcontractors so the subcontractors never really achieve insider status.

Installment Series:

Installment 1: The Best Offense is a Good Defense
Installment 2: Make the World's Biggest Customer Your Own
Installment 3: Market Research in the Federal Sector
Installment 4: Become an Insider in the Federal Market
Installment 5: Competition and Price Sensitivity in the Federal Market
Installment 6: Are Federal Bids Wired?
Installment 7: Fundamentals of Federal Contracting
Installment 8: Making a Federal Sale
Installment 9: Closing a Federal Sale
Installment 10: Start with the Credit Card and Quick Buy Markets for Smaller Transactions
Installment 11: Consider Starting as a Subcontractor to a Prime
Installment 12: Selling Directly to Prime Contractors
Installment 13: Pre-approved Government Price Lists
Installment 14: Getting a Pre-approved Federal Price List for Your Company
Installment 15: Small Business Preference Programs
Installment 16: Distinguishing Messages Win in the Federal Market
Installment 17: Selling to Federal Agencies Located in Your Backyard
Installment 18: Getting Started in Federal Sales
Installment 19: Don't Get Caught Up in Red Tape
Installment 20: Steps to Take After Winning Your First Federal Contract 
Installment 21: Learn How to Write Federal Proposals
Installment 22: Prosper in the Federal Market

Fedmarket has been helping companies win government business since 1995. We have been featured in the Wall Street Journal, the Washington Post, and other trade publications. Our customer testimonials speak to our competence and expertise in helping customers win federal business. We have been singled out by public and private organizations -- including the Small Business Administration and federally-funded Procurement Technical Assistance Centers -- as the most comprehensive government contracting resource in the industry. Our web site's free content includes informative newsletters on GSA Schedules, Proposal Writing and Federal Business Development.

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