Should Startups Fight for Government Contracts?
Startups and governments do not feature in the same debate that often and when they do, it mostly comes down to how governments around the world can help startup founders. And while this is a perfectly viable subject, this article is about something completely different. It is about jobs that various levels of governments need done but do not have their own people to do. More precisely, it is about whether startups should even consider such contracts and whether they should fight for them.
There is definitely no shortage of public contracts out there, no matter what country you live and operate in. In the EU, for example, almost 15 percent of the EU GDP is represented by public procurements, with almost 250 000 different government and public authorities around the continent purchasing services, supplies and works. The number will likely drop once the United Kingdom leaves the EU, but it is not like those contracts will disappear into thin air.
In the United States, the dollar amounts make one’s head spin, mostly due to the humongous Department of Defense contracts that were worth more than $395 billion in 2010 alone. While other government agencies were nowhere near as generous as the military, we are still talking about billions. And this is only the federal government. Add state and local governments and you get numbers that are simply surreal.
In Australia, in 2011-12 (the last fiscal year with a full report), the total value of government procurement was more than AUS $41 billion, with more than 80 000 contracts being offered up for tender.
Where Do Small Enterprises Come In?
To someone who has no experience in government contracts and public procurement, it may seem that it is a Big Boys game, where only massive corporations get in on various contracts that require thousands of employees to fulfil. And there definitely are such contracts.
However, there is also a number of smaller, often local government contracts that are more than available to smaller companies. In fact, even federal governments around the world are encouraging smaller companies to get involved.
For example, in the UK, an advisory panel started working with the government in 2016, further promoting government spending with SMEs which has already been quite common in 2014-15, with 27% of all contracts going to SMEs.
The Australian government also decided to overhaul their IT government procurement practices in 2016, vouching to shake up things and get smaller companies involved to a greater extent.
The American Small Business Administration features a body called The Office of Government Contracting (GC) which strives to promote the participation of small, disadvantaged and woman-owned businesses in federal government contracts.
It should also be pointed out that many government contracts feature contractors and subcontractors which are often smaller companies that are hired by the primary contractors to do certain parts of the job.
In short, there are ways in which your startup can get in on it.
A Few Obstacles
While startups are definitely welcome in the world of government procurement, there are also a couple of obstacles that complicate things.
For one, startups rarely provide a contract or a service that could win them a contract. Most of the time, government contracts revolve around services and products that have been around for decades and which are not exactly in the startup ecosystem. Of course, there are also startups whose area of expertise could be perfect for government contracts. Cybersecurity startups are perhaps the perfect example.
Another obstacle for startups can be the seemingly insurmountable mountain of paperwork that has to be done in order to even be considered for government contracts.
Australian startups used to face an almost hostile red tape labyrinth prior to the new ICT practices. In the US, there is an almost endless stream of acronyms that need to be handled the right way – the NAICS, FEIN, SIC, PSC, FSC and so on. There are also various surety bonds to be taken out for every part of the government contract process. The EU recently started simplifying the process for SMEs, a process that used to be most similar to the tasks Hercules faced.
Unfortunately for startup founders and SME owners in general, there is still a certain amount of politicking in the whole government procurement ecosystem. Even when no one is willingly trying to rig a contract winner, the realities of government employment can cause decision-makers to go with established mega-companies that might end up doing a worse job than a young startup. It comes down to the aversion to risk that the vast majority of government officials adopt as a survival mechanism.
Not Giving Up
If your startup does provide a service or a product that might win a government contract, by all means, go for it. The money can be very good, the stability a government contract will provide for your startup is unprecedented, and the connections you will make if you win the contract will be invaluable.
Spend some time researching application processes and finding people and institutions that might help you. Talk to other SME owners who have had experiences with public procurement.
Do not give up.