The federal government is the largest purchaser of goods and services in the world, spending some $400 billion annually on everything from paper clips to fighter-jet training services. With its annual goal of setting aside 23 percent of the payout to go specifically to small businesses—about $80 billion or so—the government may seem like a dream client, an aspiration for the country's tiniest entities.
Navigating the process of landing government contracts is no easy task, though, especially for firms that have never done it before.
We profile six entrepreneurs who fought hard to procure large, multiyear federal contracts. Read on for tips from these contractors, now generating millions in business from the government.
—By Maggie Overfelt, special to CNBC.com
Posted 26 July 2014
James "Rock" Rockhill, who retired from the U.S. Air Force in 2004 after 21 years as a fighter pilot, was used to doing big things: working as an air-traffic controller at Luke Air Force Base, near Phoenix; flying F-15s for several hundred combat hours in Operation Desert Storm, Bosnia and Serbia; and training young military pilots how to fly fighter jets.
But when Rockhill started to build a small company around providing aviation services for the federal government, advisors told him he was aiming too high in bidding for multimillion-dollar contracts.
"It's very difficult for small businesses to get federal contracts, because the government, especially for aviation control, prefers to hire folks who have experience already [working] with the government," said Rockhill. "I learned that I needed to pick a more finite niche."
After months of researching and preparing proposals, The Rockhill Group (TRG) won its first federal contract in 2005: $38,887 to supply pilot-training materials to the Air Force. "I tried to be as competitive and low-priced as I could … finding a place in Orlando that offered me a 40 percent discount off the materials. I think I [sold it] for just a few dollars above that," Rockhill said.
For nearly six years, revenue for Gulf Breeze, Florida-based TRG stayed flat at $2 million, as the company slowly won larger contracts for things, like providing weather observation services at seven—then eventually 19—airports for the FAA. (Rockhill formed two other companies—a flight school for Navy pilots and a fixed-base operation services firm—to help supplement sales.)
In 2012, Rockhill started bidding for what he referred to as the "big, rare contracts," which involved pilot training, aircraft maintenance and supplying aircraft. This expansion of federal contract work has helped TRG grow to a company of 200 employees today spread among 25 U.S. locations, with $20 million in annual revenue and more than $72 million in government contracts. While running a business that's fully dependent on federal contracts has its cons—during last year's shutdown, the government was late in paying TRG's invoices—Rockhill said immediate growth will still come with applying for bigger contracts.
For Kristen and Michael Nevils, entrepreneurial inspiration came on the coattails of Hurricane Wilma, which ripped across southern Florida in 2005. "[For hurricane preparation], they tell you to fill a bathtub with water," said Kristen. "But it's too easy for a bug or pet to get into that open water container."
Michael, an Army veteran-turned-inventor, dreamed up a portable container, one that could hold 65 gallons of potable water and be hand-pumped to siphon water for cooking, brushing teeth or flushing the toilet. He hammered out a workable design, and the two launched M.R. Crafts in Davie, Florida.
It took about a year of peddling before the container caught the attention of the American Red Cross, the state of Florida and eventually Grainger, the multibillion-dollar supplier of maintenance, repair and operating products.
By that time, the company had evolved into a full sourcing and manufacturing company, with a capability for quickly manufacturing emergency products—the company made 2.25 million face masks and provided them to Grainger during the 2009 H1N1 swine flu epidemic, and 1 million hazmat boot covers were ordered by Grainger for workers cleaning up the BP oil spill in 2010.
M.R.'s turning point came when Grainger alerted the firm to a $10,000 opportunity to work with the U.S. Postal Service, which was looking for a manufacturer to make 10,000 tote bags to promote a national recycling campaign. "They gave us requirements for the size, logo, materials and all the specs," said Nevils, whose company eventually won the contract after a month of going back and forth with the government.
M.R. Craft's goal is to hit $3 million in annual revenue by June 2015—it had $500,000 in 2013 revenue, but growth has been rapid in manufacturing and VA contracts—it has grown its VA contracts from two to five hospitals this year. The VA contracts are projected to represent half of the $3 million goal.
The company is certified as a service-disabled veteran-owned small business and makes about 50 percent of its total sales from the government. M.R. holds contracts to supply, resell and source maintenance, repair and operations products to VA hospitals in Florida and California and hires disabled veterans and wives of deployed soldiers when it can. Plans to expand work to VA hospitals in the Carolinas, Oklahoma, Kansas, Missouri and New York are in the works, where the company has a strong sales force and connections.
The VA has been criticized this year at its most senior level for management of its hospitals and veteran care—Veterans Affairs Secretary Eric Shinseki resigned earlier this summer—but Kristen Nevils said those issues are not a business risk for M.R. Crafts, because the company's contracts relate to basic hospital supply needs. "We help keep the hospitals running," she said.
The company also has a contract with the U.S. Army to supply chemicals for water treatment at the Aberdeen, Maryland, base, the Aberdeen Proving Ground. It is a small contract, but was made easier to win with its veterans' certification.
Lisa Firestone launched her employee benefits and disability management consulting firm in 1997, but it wasn't until six years later that she saw an untapped niche: handling case management for workers' compensation issues for the federal government.
"We went from pure consulting to offering a suite of products that assisted the recovery of employees injured on the job," said Firestone, President and CEO of Managed Care Advisors, who, armed with the technical expertise, partnered with another small, woman-owned firm that was better versed in government contracting to bid for the first job.
Although teaming with another company to try and win a single contract is a strategy lauded by consultants, landing that first one wasn't easy. "We were up against large businesses and up against the fact that we never had a contract before," said Firestone. "We also had to protest the first bid, where the initial determination was that no small business could handle the job. But we ended up winning it."
From there, Firestone decided to "really learn the government contracting business" so she could successfully compete for prime contracts, where her company would be solely responsible for fulfilling the job.
The research set a precedent for how Firestone investigates future jobs. Before landing her biggest contract to date—a so-called blanket purchase agreement for up to $53.5 million from the Department of Homeland Security—she spent at least three years researching the agency, figuring out the opportunities it might afford her company.
Today, Bethesda, Maryland-based Managed Care Advisors generates about 90 percent of its revenue from federal contracts; it holds six prime contracts and two subcontracts with a handful of different agencies.
While the company wouldn't disclose an exact revenue figure, the $53 million contract is for up to five years, and that's just one of eight contracts Managed Care Advisors currently holds. Firestone said 90 percent of revenue comes from these contracts, and year-over-year sales have been growing at a rate of 30 percent to 40 percent. She plans to add at least 20 employees—making 60 total—in the next six months.
Ridgewells Catering has provided catering services to Capitol Hill for much of its 85 years in business, and piggybacking on larger food companies' contracts for federal jobs has been a major growth driver.
CapitolHost, which was spun off from Ridgewells as a separate entity in 2003, is the exclusive caterer in the exclusive rooms on the Hill, but Ridgewells CEO Susan Lacz noted that hospitality behemoth Restaurant Associates holds the prime contract to supply the Capitol with food. (Ridgewells catering fulfills a portion of the larger contract.)
As CapitolHost has won additional contracts to work at government locations, such as the Pentagon's visitors center and the National Defense University. Revenue has almost doubled, from $6 million to $12 million. Ridgewells' overall sales, which include CapitolHost's, ring in at about $40 million—the company makes most of its revenue from sporting events, including its biggest client, the U.S. Golf Association, and by providing lunch programs for prestigious private schools.
Prime contracting in this case—or taking full responsibility for the work—doesn't make sense for Ridgewells. Food service overall "is not what we do," Lacz said. "Catering is a great business, because whether it rains or snows or whatever the case may be, we get our money upfront, in advance," said Lacz.
Ridgewells isn't immune to the challenges of working with the government. Sales suffered during last year's shutdown, and dealing with price increases—like with a newly mandated initiative to use recyclable materials—is much more difficult than when working with the private sector. "Even though the price of food [or materials] goes up, it's hard to get a price increase—a contract is a contract," said Lacz.
Recent history suggests that the federal government and cutting-edge technology aren't always congruent, but according to the folks at INADEV, a 75-employee provider of custom mobile and tech solutions, the number of government officials looking for groundbreaking tech is growing.
"It's a great market right now for innovation, for bringing new ideas and thinking out of the box," said Ferhan Hamid, CEO of Tysons Corner, Virginia-based INADEV, which in January landed a job worth more than $1 million with the American Battle Monuments Commission to deliver an interactive experience for visitors at the National WWII Memorial.
The deal, which called for technology to power the site's new information kiosks and a people-finding mobile app, marked the first prime contract for INADEV. The company's history working as a subcontractor with larger government contractors, like Lockheed Martin—introduced to INADEV by an industry contact—initially helped open the door to bigger projects.
"In 2010, the very beginning of this industry in terms of mobile application development, we had an opportunity to work on an app for the Department of Homeland Security," Hamid said. Work on the product—a smartphone app that allowed the public to access the Federal Emergency Management Agency disaster-response capabilities—led to a subcontracting deal for the Social Security Administration, where INADEV created a transactional mobile app that reports monthly wages back to SSA's back-end systems.
"As a small business, having those relationships with large prime contractors is a key to early success," said Hamid, whose firm has revenue between $5 million and $10 million and has completed about 10 federal contracts. "It helps you build past performance and build relationships."
Sometime between 2010 and 2011—when the federal contracts starting flowing in for the then-3-year-old project management firm The ELOCEN Group—founder Necole Parker sold her home and set up shop in her parents' basement in Prince George's County, Maryland. She needed to reserve enough cash to pay her employees on time.
The company was quickly building a reputation at agencies such as the General Services Administration and the DoD for program, construction and facilities management services. It was pulling in significant contracts, but it was also facing a common problem among small firms tackling their first few million-dollar contracts: lack of ample resources—in this case, manpower. Small-business experts cited this as a classic catch-22 of growth: The company has the expertise, but not necessarily all the resources, to fulfill many big contracts.
Still working out of her parents' basement, Parker landed her first $1 million contract. She would actually act as the project manager on given jobs herself (while overseeing her company) until she was able to hire enough staff—former colleagues—to whom she would delegate responsibilities. Parker had formerly worked for Gilbane, a national construction and real estate development firm.
"If the first step is trying to get access to contracts, the second is being fully capable and finding people," said Parker, whose firm has 53 employees today. "Having worked in the industry before, I had to reach back and find people who believed that I could afford to take them on."
Today 85 percent of The ELOCEN Group's revenues come from the federal government; 15 percent come from the private sector, with a focus on the information technology sector. Its largest contract, a five-year $50 million job from the FDA, is to manage the consolidation of multiple facilities into its main campus and should push the company's revenues to more than $10 million this year, a substantial jump from the $5.5 million mark that ELOCEN has held for the past few years.
"I've learned not to put all your eggs in one basket," Parker said, who has been slowly growing her company's work with the corporate sector over the past two years. "We've mapped a plan, and I've learned that it's not something that just happens overnight."
- Be willing to bid low and sacrifice profit in order to break through.
- Patience isn't just a virtue—it's essential to winning government contracts.
- There is a snowball effect when it comes to federal procurement—once in, additional opportunities are likely.
- The right relationships with bigger firms will open doors.
- You don't have to be a government contractor to become one.
- Having the right background may catapult your bid; it's not just about your business but about who owns the business.
- Find a friend who has been through the government process before (and lean on them). Take notes during this process so you can formalize your approach.
- Research, research, research before making a bid; that means months, maybe even a year.
- Being close to the nation's Capitol can't hurt.
- You don't have to choose between government and private-sector work; in fact, you shouldn't if you can diversify the risk.
- Sometimes you just have to take a big risk or miss a big opportunity.