Government Purchasing and Contract Vehicles: Opportunities for Small Businesses

This post is the final installment in a series on understanding government contracting and maximizing opportunities to participate in government contracts.

In order to explore which niche markets would be available for small businesses, it is important to understand how the U.S. government views its procurement activities. Generally, the government uses North American Industrial Classification System (NAICS) codes to classify and group its purchasing activity. Using information gathered about these classification codes, we can identify the products and services where small businesses should concentrate their efforts for the highest probability areas for successful procurements.

Over the last ten years, the sectors with the most spending are sectors 31-33 (manufacturing, $1.61 trillion) and sector 54 (professional, scientific, and technical services, $1.27 trillion). This gives us some preliminary directions in which to investigate as to where small businesses should concentrate resources. However, this information can be misleading for small businesses searching for opportunities as some have very large single contract values.

Small businesses are likely to have more success competing for contracts in areas that have higher numbers of contracts overall. It is assumed that the more contracts issued within an NAICS code, the more likely that the average contract value will be smaller and within the price/cost range of a small business to bid on and provide that service. For example, over the last decade, the most government contracts were executed under NAICS code 424490, “other grocery and related products merchant wholesalers,” at approximately 170,000 contracts. A table with the top industries in terms of total number of government contracts can be found below.

NAICS NAICS Description Number of Contracts % of Total No. of Contracts Cumulative % of Total No. of Contracts
424490 OTHER GROCERY AND RELATED PRODUCTS MERCHANT WHOLESALERS 171316 15.21%
424210 DRUGS AND DRUGGISTS’ SUNDRIES MERCHANT WHOLESALERS 131551 11.68% 26.89%
541330 ENGINEERING SERVICES 85804 7.62% 34.51%
336413 OTHER AIRCRAFT PARTS AND AUXILIARY EQUIPMENT MANUFACTURING 70785 6.28% 40.79%
236220 COMMERCIAL AND INSTITUTIONAL BUILDING CONSTRUCTION 45037 4.00% 44.79%
541519 OTHER COMPUTER RELATED SERVICES 30064 2.67% 47.46%
517110 WIRED TELECOMMUNICATIONS CARRIERS 28400 2.52% 49.98%
541712 RESEARCH AND DEVELOPMENT IN THE PHYSICAL, ENGINEERING, AND LIFE SCIENCES (EXCEPT BIOTECHNOLOGY) 26598 2.36% 52.34%

As can be seen, more than half of all government contracts have been executed within only 8 industries within the past 10 years. This means that small businesses are more likely to win contracts in these areas as the annual dollar amounts of the contracts will be lower (usually less than $500k). The total contract may last for 3 to 5 years, having a total value of approximately $1.5 to $2.5M.

Teaming or Selling to Other Companies to Establish a Presence in the Market

After careful evaluation of its alternatives, a small business can improve its procurement opportunities by seeking teaming and sub-contracting opportunities with established government contractors.

Teaming and subcontracting offers many advantages, among them expanding in areas already covered by GWACs and MACs. This provides an opportunity for the small business to build on past performance and experience under US government subcontracts and provides access to small business set-asides.

Most contractors are already used to teaming and subcontracting for competing for or performing government contracts. As with any other company company, they will look for companies that add value to them through technology, price, and service competitiveness.

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