Cost of Doing Business With the Federal Government on the Rise

Each year, federal agencies spend billions of dollars purchasing goods and services from small businesses and large contractors alike. Despite a lack of growth in spending in recent years, the federal government remains an important market for many growth-oriented small businesses. Indeed, U.S. small businesses were awarded approximately $90 billion in government contracts by the federal government in 2015.

At the same rate, the cost of doing business with the federal government continues to rise, up 15% over the past three years and up 72% since 2009, according to research for the American Express OPEN for Government Contracts Program. A recent survey was conducted among the owners of businesses that are active in the federal procurement marketplace, the fourth such undertaking since 2010 by AMEX’s OPEN for Government Contracts initiative.

The report focuses specifically on key trends with respect to small firm bidding and contracting activity since the first survey, which was conducted in 2010; the investments small businesses are currently making in seeking federal contracts; and their success rates in the government procurement marketplace over the past six years. AMEX notes that upcoming reports will focus on how women-owned and minority-owned firms, in particular, are faring in federal contracting, and what lessons firms that focus on subcontracting as a procurement strategy can share.

Key Findings from AMEX OPEN

Active federal contractors reported spending an average of $148,124 last year seeking federal contract opportunities. This compares to an average reported investment of $126,628 in time and money in the 2013 survey. In the inaugural procurement survey conducted in 2010, the average investment was $86,124.

In each of AMEX OPEN’s four surveys, firms owned by persons of color have been found to invest more time and money seeking federal contracting opportunities. In 2015, minority-owned firms invested $152,969 seeking federal contracts, 6% more than the $144,676 investment made by Caucasian-owned companies.

On the other hand, women-owned federal contractors continue to spend less time and money seeking federal contracts. Women-owned firms reported investing $107,774 seeking federal contracting opportunities in 2015, just 58% of the amount invested by men-owned firms at $170,621.

Large Contractors are Big Winners

According to AMEX OPEN, prime contracting success rates rise with firm size. The batting average among firms with fewer than 10 employees or less than $250,000 in revenues is much lower than among firms with 50 or more employees or $5 million or more in revenues. Smaller firms continue to find greater success latching on as subcontractors. AMEX OPEN’s research shows that smaller firms notched a higher share of victories than their larger competitors in the subcontracting arena.

What’s more, only large contractors are more active now than in 2010. One-quarter of active federal contractors say they are more active in contracting now than they were five years ago. Business owners find that it’s getting harder to win contracts because there are more bidders now for each opportunity, with 62% of active contractors agreeing with the statement, up from 52% in 2013.