Small businesses need to get their first federal contract to become part of the club of insiders - those companies with contracts - that the federal government favors when it buys products and services. Vendors who don't have approved federal price lists usually have to start out as a subcontractor to an existing federal contractor, commonly called a "prime contractor," in order to close a sale. Contracting officers can elect to have a prime contractor execute a subcontract with your business as a way to close a deal under the rules. Convoluted as it may sound, many federal sales are closed using commercial subcontracts.

For example, let's assume your company hopes to sell a product or service to an end user at a particular federal agency. 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 prime contractor may already have a contract with the agency or have an approved price list that can be used to close the sale. The use of the "sub to a prime" approach to making a purchase is quick and painless for federal buyers. They are usually more than willing to pay the overhead that a prime contractor tacks on to subcontract costs.

Subcontracting is a valid way to close a sale but it has drawbacks. The primary drawback is that acting as a subcontractor to a prime contractor doesn't give your business its first step toward achieving insider status. When acting as a subcontractor, your company does 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. Small businesses need a GSA Schedule contract to get out from underneath a prime contractor so they can contract directly with the federal government. Companies holding a Schedule contract have a far better chance of selling directly to the federal government than those which don't.