ComplianceLegalNovember 19, 2020

Getting on approved or preferred vendor lists can be the key to succeeding as a government contractor

To get government subcontracting opportunities, you'll need to take the actions necessary to become a qualified subcontractor by following the appropriate procedural steps to get yourself recognized as a legitimate player in the government contracting field. You can improve your business's chances to become a subcontractor for a prime contractor by getting listed as an approved or preferred lender. Also, consider joining a flexible network of manufacturers.

Almost every large business, including prime contractors, has an Approved/Preferred Vendor List, or something very similar, that lists the vendors and subcontractors that have been approved by the prime for quality, on-time delivery, and other factors.

Many small businesses work very hard to get on these lists. And you should, as well, because being on the list means that you have passed the test that allows you to sell your products or services to that particular prime.

How do you get on these lists? Basically, you need to do two things: First, you need to fill out their Approved/Preferred Vendor evaluation form, and second, submit to an inspection.

Filling out the application form

It is important that you get your company on every potential prime contractor's Approved/Preferred Vendor List, or something very similar, which lists the vendors and subcontractors that have been approved by the prime for quality, on-time delivery, and other factors.

Each company has its own version of the Approved/Preferred Vendor Application Form, which you can obtain from the prime's small business liaison or purchasing department. The information that you will be asked to provide will vary from prime to prime, depending on the type of work you will be doing.

A few words of caution about filling out the form: Don't think of the vendor approval form as just another formality or just another piece of paper that you can quickly fill out and send it in. You need to be concerned and careful about the information you enter. Submitting a vendor form with a set of numbers missing or filling in the wrong (or illegible) information could end your chances of winning a potentially lucrative contract. Therefore, before you return the form to the prime, make sure that it is complete, correct, and readable. Check it, and then check it again.

Are you on one or two lists already? Well, good for you, but in the long run, it will be better for you to try to get on the lists of several different primes. One of the hidden dangers of focusing on doing business with just one or two large companies is that you become too dependent on them. Imagine the shock of losing 50 or 75 percent of your business in one day. And with all your eggs in only one or two baskets, so to speak, you are putting yourself in a position where this could happen. (Sadly, we have seen it more than once.)

This same principle of spreading your base applies to the industries with which you do business as well. It is worth the effort to try to generate business in different industries, if possible, or at least in different segments of an industry.

Prepare for and pass an evaluation or inspection

After filing the form, the prime contractor will likely have your company submit to an inspection. The prime wants to assure that you are qualified and can comply with the subcontracting requirements.

The evaluation can be anything from a desk review, in which the prime will examine your company's records, financial statements, and other documentation, to a full site inspection of your facility. The type of evaluation depends on the circumstances of the contract and/or on company policy.

If you are providing a critical part of the end product or there appears to be a potential for a long-term business arrangement, the prime will probably want to do a full site inspection, which can be done by one person or a whole team. If that is the case, in addition to having your documentation ready for examination, you will also need to be ready to address questions and look your best.

If, on the other hand, your work involves a requirement that is ancillary in nature, a desk review may suffice.

Warning: While the full-fledged evaluation/inspection we describe is basically an initial event that is part of getting on a prime's approved/preferred list, you can expect the prime to return, possibly multiple times, to inspect once you have won a subcontract and begun doing work. For example, the prime might want its quality or production people to watch a particular phase, to verify that a particular requirement is being fulfilled properly, or to just make sure that everything is on track. The type and frequency of inspections will depend on the terms of the particular contract and will occur as the need arises or as the situation or contract changes.

What type of information do you need to get ready for an evaluation? Following is a list of some general categories of data that you will be asked to provide (note that gathering this data will prepare you for an inspection by any prime that you may be interested in):

  • Manpower — Include the availability of technical and supervisory personnel with special skills and know-how.
  • Facilities and equipment — List your equipment and include the arrangements you have made for additional facilities and equipment, if needed.
  • Quality assurance — Show the system(s) you use and indicate whether they have been approved by any government agency or other prime.
  • Production scheduling — Have charts ready to show how you plan to meet the prime's schedules.
  • Schedule of total workload — Include any anticipated and any repeat work as well as the dollar value of any remaining backlog.
  • Bill of materials — Include a description of the product to be made in your plant and a list of materials you need to buy from the suppliers. Identify what you can do in-house and what, if anything, needs to be outsourced.
  • Inventory — Check your existing inventory for usability on the proposed contract. Identify what steps you are taking to ensure that the parts and products you will need on the proposed subcontract will be on hand.
  • Materials, suppliers, and/or subcontractors — Include written or other confirmations on delivery dates of major and critical items.
  • Cost breakdown and analysis — Describe costs in sufficient detail to allow evaluation of cash flow spreadsheets.
  • Cash flow spreadsheets — Include sheets for the proposed contract and for the company's total workload. Reconcile these with the production schedule and the company's commitments for materials as well as other financial commitments.
  • Financial statements — Include, if necessary, your most recent profit and loss statement and balance.

Work smart

Most primes will give you high marks for good documentation (as does the government). Therefore, as you gather this information, put it all in one place. Anything from a 3-ring binder to an electronic file will suffice — so long as you have covered the issues outlined above and the information is current and complete. It is nice to be able to just pull a book off the shelf or pull up a file on your computer and present information that is current, complete, and easy to interpret. This is a professional touch that will assure the prime that you are in control of the situation and that you have all your ducks in a row.

Consider flex networks to expand subcontracting opportunities

Let's say your small business can handle only one or two manufacturing processes, giving it a limited core competency. How can you succeed in doing business with the federal government or prime contractors? Well, you may want to consider joining a flexible network of manufacturers.

This concept originated in Old World Italy, in the northern region of Emilia-Romagna, where very small furniture, ceramic, textile, and metalworking firms organized into flexible networks that created an industrial renaissance for the region. The idea has traveled the world, and thousands of networks proliferate Europe. But here in the United States, its time has only recently come.

The modern flexible network is a group of companies that have formed an alliance to serve or enter a new market. The arrangement ebbs and flows, as projects come along and customers' needs change. The organization takes many forms, from joint ventures to traditional prime/sub relationships. Some produce parts; others assemble. The key is to leverage each partner's strengths to create something that could not be produced alone.

A successful flexible network can be a boon to its partners, but getting one off the ground is difficult and time-consuming. There are many pratfalls, so due diligence is required. As with all partnerships, all members need to be satisfied with the efforts, or else the arrangement falls apart. Careful planning and communication go along way.

The flexible network needs much more than just a manufacturing arrangement and a paying customer. Begin with good legal advice, drawing up contracts, and managing expectations. Be sure to enlist the help of available financial resources, such as banks and local, state, and federal governments (community and regional governments are a large source of support). Finally, get a director or project manager to oversee the entire operation.

Potential partners are usually found locally but don't limit yourself. In this age of digital communication and overnight delivery, the world is much smaller and partners are much closer.

But a good network takes time to develop, sometimes years, if done correctly. There are managers to hire, relationships to cultivate, and customers to find. But the opportunities are numerous if you're flexible enough.

The grease that makes a network work is communication; you must network and talk. There must be regular meetings, sharing of information, going over opportunities, resources, new technology, who is doing what, and finally what is going wrong. There must be honesty for this to work. Learn and share is not only important but also vastly less expensive for each company. Consider the following points:

  • Sales/Marketing — train each team member about your company and they become a resource for you.
  • Technical/Management — together the team can hire a shared resource or resources that are too expensive for just one. One member may be able to attract more work in one area, like aerospace or printing, but need more resources to be able to pursue.
  • Equipment — share vs. buy. Bid Board Services — a dedicated shared resource.
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