Pursuing government contracts can be costly
Uncle Sam isn't as easy a customer to land as he used to be.
Even before $85 billion in federal budget cuts took effect last spring, small-business owners who contract with the government were finding that the cost of going after federal contracts had spiked. On average, small businesses spent more than $128,000 in labor costs and other expenses in 2012 to pursue government contracts, according to a survey by American Express. That's up 49 percent from 2010.
Now that many of the budget cuts are in place, it's become even harder and more expensive for small businesses to compete for contracts, which they often count on to generate a significant portion of their revenue.
Ken Anderson usually goes to 20 or more trade shows a year to meet with hundreds of Department of Defense employees who are interested in buying the technology made by his company, Universal Synaptics.
Travel budgets slashed. But federal agencies' travel budgets were slashed in the so-called sequestration cuts that took effect March 1, so many of the shows were canceled. Now Anderson is spending more time and money flying to meetings at government facilities. Instead of going to one show, he has to make as many as 10 trips.
"One might be in Warner Robins, Ga.; Cherry Point, N.C.; Patuxent River, Md.; or Jacksonville, Fla.," says Anderson, vice president of business development at Universal Synaptics, which makes diagnostic equipment for military aircraft.
Anderson says the trips he's making aren't guaranteed to result in a new contract for his Ogden, Utah, company. Meanwhile, his travel costs are up as much as 30 percent this year.
The cost of bidding on a federal contract can exceed 3 percent of the total amount of the contract, according to the House Small Business Committee. So on a contract worth $100,000, a business might spend more than $3,000 during the bidding process. Companies seeking federal contracts typically lay out costs for travel, product development and writing up proposals.
The extra trips that Shep Brown and his staffers are making to meet with defense employees translate into an enormous time and monetary expense, said Brown, chief executive of Howell Instruments, a Fort Worth, Texas, maker of testing and monitoring equipment for airplanes.
"It takes a month to do what I did in three days" at trade shows, Brown said, adding staff costs were up 200 percent.
The Small Business Administration, the federal agency that advocates for small companies, said it had anticipated small firms would get fewer contracts and fewer dollars because of the cuts. And there's another hurdle: contracts are taking longer to be approved, forcing companies to look elsewhere for revenue.
Long waits for work. "The time that it takes from submitting a bid or a proposal to the award is strung out," says Bob Mander, owner of Ryan & Co., a company that writes technical documents for the government and nonprofit groups.
His Washington, D.C.-based business submitted a bid to the General Services Administration more than three months ago and he's still waiting for a response.
Small businesses that partner with companies that work directly with the government also are contending with longer waits and a drop in revenue.
Dulles Case Center has been busy the past few months working on bids with the federal contractors that it partners with. The government has sought price quotes on the carrying cases that the Dulles, Va., company manufactures for weapons, radios, computers, medical equipment and other items.
"We've been doing three times as many quotes as we would in any given month," said owner Donna Kulesza, "but we're seeing a lack of activity."