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8 Reasons Why Most Contractors Fail

Almost every businessperson aspires to one day secure a federal government contract. After all, the federal government is the world’s largest purchaser of goods and services. Securing a piece of this pie would be a major accomplishment. But unfortunately, most businesses that contract with the federal government fail. In fact, according to recent reports, approximately 50% of all small businesses that contract with the federal government will go out of business within the first two years. So what’s the reason for this high failure rate? And more importantly, what can you do to avoid it? This blog post will explore the top 8 reasons federal contractors fail and how you can prevent them.

NAICS Codes Mixups

One of the most common reasons a small business fails as federal contractor is because they mix up their North American Industry Classification System (NAICS) codes. The government uses NAICS codes to classify companies according to their size and work type.

If you want to contract with the government successfully, you must ensure you’re using the correct NAICS code for your business. The proper NAICS code is vital because the government uses it to determine whether or not your business is eligible for specific contracts. If you use the wrong code, you could be inadvertently excluded from bidding on particular contracts.

To avoid this mistake, take the time to research the correct NAICS code for your business and make sure you’re using it correctly. Generally, a primary NAICS code¬†with secondary ones can be applied. You can use the SBA’s NAICS Code Lookup tool to find the correct code for your business. Furthermore, obtaining an accurate primary NAICS code is vital because it can significantly affect the amount of money you make over the next three years.

Misunderstanding of the RFP Process

Another common reason federal contractors fail is that they misunderstand the Request for Proposal (RFP) process. The RFP process is when the government solicits bids from contractors and selects a contractor to award a contract.

Contrary to popular belief, the RFP process is not a “race to the bottom.” In other words, the government is not necessarily looking for the lowest bid. Instead, they are looking for the best value. Therefore, the government will evaluate all proposals based on several factors, including price, technical approach, and experience. To increase your chances of success, you must take the time to understand the RFP process and what the government is looking for.

Many contractors see the dollars set to be awarded rather than paying attention to the scope of the work. For example, if the government is only willing to pay $500,000 for a project, but your company requires $750,000 to complete it, then you need to re-evaluate whether or not bidding on the contract is a wise decision. Pursuing high-value contracts can only benefit if a contractor can win and perform. 

Lack of Past Performance

One other common reason federal contractors fail is that they lack past performance. Past performance is “the extent to which a contractor has satisfactorily performed similar work on previous contracts.” In other words, it’s a way for the government to gauge whether or not a contractor is likely to complete a project.

The government puts a lot of emphasis on past performance when awarding contracts. As a result, many government agencies will not even consider contractors with no past performance. There are a few ways you can overcome this obstacle. First, you can team up with another contractor with relevant past performance. This will increase your chances of being awarded the contract. Second, you can offer to do the work on a time-and-materials basis. This means that you will only be paid for the work you complete. Once you start winning contracts and building up your past performance, you’ll be in a much better position to win larger contracts.

Not Focusing on the Customer’s Needs

When it comes to federal contracting, the customer is always the government. So to be successful, you need to focus on your customers’ needs and ensure that you’re meeting their requirements.

One common mistake contractors make is assuming they know what the government wants. This can lead to a lot of problems down the road. Therefore, it’s essential to take the time to understand the customer’s needs and ensure that you can meet them.

Not Following up After the Submission of a Proposal

After you submit a proposal, it’s important to follow up with the government. This is often done through what’s called a debrief. A debrief is when the government sits down with you and tells you why you didn’t win the contract.

It’s necessary to take the time to attend these debriefs. They can be beneficial in understanding what the government is looking for and how you can improve your proposal for future opportunities.

Additionally, it’s crucial to maintain contact with the government even if you don’t win the contract. These contacts can be handy down the road when trying to win future contracts.

Failing to Understand the Acquisition Process

The federal contracting process is very complex, and there are a lot of rules and regulations that you need to follow. If you don’t understand the acquisition process, it will be challenging to win a contract.

One way to overcome this is by working with a professional who understands the acquisition process. They can help you navigate the complexities of the process and increase your chances of winning a contract.

Another way to learn about the acquisition process is by reading the Federal Acquisition Regulation (FAR). The FAR is a document that outlines all the rules and regulations that you need to follow when contracting with the government.

Not Having a Solid Marketing Strategy

To be successful in federal contracting, you need to have a solid marketing strategy. This strategy should include various methods for marketing your company to the government.

Some standard methods for marketing your company include attending trade shows, exhibiting at conferences, and writing articles for trade publications. Additionally, you can also create a website that’s specifically designed for government contracting.

If you don’t have a solid marketing strategy, it will be tough to win contracts. You must ensure you’re doing everything possible to market your company and get your name out there.

Failing to Manage Expectations

When it comes to federal contracting, it’s essential to manage expectations. This means setting realistic goals for your company and understanding what the government is looking for.

If you set unrealistic goals, it’s going to be very difficult to meet them. This can lead to a lot of problems down the road. So it’s important to sit down and realistically assess your company’s capabilities before setting any goals. Additionally, it would be best to understand what the government is looking for. This way, you can ensure that you meet their requirements and give them what they want.

These are just a few of the most common reasons federal contractors fail. If you can avoid making these mistakes, you’ll be in a much better position to win contracts.

Do you have any other tips for federal contractors? Share your thoughts in the comments below. 


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