How to Become a Subcontractor for the Federal Government: Complete Guide

Here in the United States, federal government contracting remains a massive cog in the economic wheel. In 2023 alone, the federal government spent $765 billion on federal contracts, up 9.5% from the previous year. As a small business owner, you may think your business isn’t properly positioned to provide for the federal government, but you may be mistaken. Through subcontracting, small businesses have the opportunity to capture some of this spending by the federal government by working with prime contractors.

In this guide, we’ll share everything you need to know on how to become a subcontractor for the federal government. Gets tips, advice, and step-by-step directions to getting set up for subcontracting and becoming successful in securing more opportunities.

What is subcontracting?

Subcontracting is when a company is hired by a prime contractor to perform specific tasks or provide services on a project. The subcontracting company is responsible for fulfilling a specific portion of the contract, such as providing goods, services, or expertise. This arrangement allows the prime contractor to leverage the subcontractor’s specialized skills or resources to complete the job.

In government subcontracting, a subcontractor works with a prime contractor who has secured a contract with a government agency instead of a private or civilian organization. This type of contracting comes with its own specific regulations and contract terms, as well as unique opportunities to work on large projects.

Subcontracting vs. prime contracting

Different from subcontractors, prime contractors engage and work directly with the federal government. Typically, prime contractors are larger, more established businesses (think Lockheed, Verizon, FedEx, etc.). If your business is interested in exploring prime contracting, you can read our guide on securing your first contract here. If you’d like to know more about the differences between the two, read this guide here.

Benefits of subcontracting

In 2023, the federal subcontracting landscape flourished, with approximately $102 billion in contracts awarded, maintaining the previous year’s total. With plenty to go around, it’s easy to see subcontracting as a wonderful avenue to explore the federal contracting space. Here are some more of the top benefits for subcontractors:

When subcontracting, companies can sidestep some of the complexities and challenges of government procurement processes in securing direct federal contracts.
Similarly, prime contractors must undergo an arduous, comprehensive registration process, while subcontractors do not.
Through subcontracting, companies can nimbly seize opportunities as they present themselves.
Contractors often shoulder a significant portion of risks associated with government contracting, reducing risk exposure for subcontractors. As firms engage in subcontracting, they can become specialized in a particular area. Once this specialization is established, more prime contractors will seek out the company to enlist their services as subcontractors. This development can lead to compounding growth for a small business.
Various government contracts force large businesses to subcontract with smaller businesses to create more growth opportunities for domestic small businesses. Federal contracting officers have the latitude to include subcontracting elements exclusive to small businesses in their agreements with federal contractors.
Furthermore, subcontractors can foster relationships with much larger firms resulting in potential future business.

Note: Small businesses wanting to work with larger companies must self-certify as “small” within the U.S. Small Business Administration’s sizing standards. Additionally, prime contractors can use the Dynamic Small Business Search to discover small businesses that fit their subcontracting needs.

How to become a government subcontractor

Okay, so you’ve decided to take your company headfirst into subcontracting. Once you’ve registered as a small business with the SBA, it’s time to take the following steps to secure your subcontractor work.

1. Hone your business’ value proposition

As mentioned previously, you’ll want to identify what niche or specialization your business can address. By being specific with what your business can offer at a high level, you set yourself up for success in obtaining different types of contract opportunities in the federal marketplace.

2. Properly register your business legally

This step was most likely handled upon the incorporation of your business, but still bears mentioning. Be sure that your business is registered legally (and with SAM) to prevent any consternation from the Internal Revenue Service. If subcontracting is new to your business, you might have to file your business taxes differently. Subcontractors are considered self-employed entities, so align with an accountant to ensure you are legally set up correctly.

3. Review subcontractor rights and needed documents

The rules and regulations that oversee the subcontracting program are fully described in the Code of Federal Regulations, the Federal Acquisition Regulations, and various agency-specific documentation. Be sure to identify what agency oversees your particular industry and review these documents thoroughly before engaging in subcontracting agreements. Check what documents prime contractors in your business industry require. For example, some prime contractors require subcontractors to submit a capability statement before working with them.

4. Monitor subcontracting directories

Once you have reviewed and revised everything needed before searching for subcontracting opportunities, it’s time to start seeking them out! Below are directories where prime contractors post available work that you should routinely monitor.

5. Network with prime contractors

When prime contractors engage with federal contract officers that require subcontractor work, they’re incentivized to find subcontractors. Many large businesses encounter this situation frequently enough that they’ve developed web pages specifically for small businesses to register with the larger contractor and vet what services the large corporation is looking for. Here are a few examples of such websites:

6. Review subcontracting contract

Be sure to carefully review the contract that your prime contractor counterpart is offering. In particular, you’ll want to take note of the compensation, flow-through, and indemnification clauses. Again, large corporations are incentivized to work with your small business so most likely everything will be in order — but it can’t hurt to double-check that this is the case.

7. Acquire project insurance

Upon signing business, you’ll want to insure your business for the project. Most typically, small businesses opt for Commercial General Liability (CGL) coverage, which protects your business from any harm or damage you may be liable for. As you take on various subcontracting opportunities, work closely with your insurance provider to ensure that you’re best set up for success over the long term.

Other notable available partnerships

Other than the partnerships between prime contractors and subcontractors, two other partnership types are common within the federal acquisition space:

Joint venture

Unlike contractual partnerships between prime contractors and subcontractors, a joint venture partnership is considered a new legal entity. This new partnership will require approval from the SBA, a separate federal identification number, and a new SAM user account. Joint ventures are formed to pool resources between businesses to support the corresponding government agency cost-effectively.

Contractor team arrangement (CTA)

Specific to the GSA, a contractor team agreement (CTA) involves two contractors working together to meet the needs of agencies and organizations that order from GSA schedules.

Note: A CTA is not the formulation of a new company and is merely an arrangement between two existing entities.

Federal subcontracting: Tips for success

Becoming a subcontractor for the government can open doors to incredible opportunities for your business. However, to find success in this field requires strategic approaches and ongoing diligent efforts. Below are a few helpful tips and ways to achieve subcontracting success.

Finding more opportunities

Discovering potential subcontracting opportunities for federal government projects requires a proactive approach, especially in the beginning. To find more opportunities to bid on, consider these unique approaches:

Regularly monitor government procurement portals like SAM.gov for subcontracting opportunities.
Attend industry events, conferences, and matchmaking sessions to discover potential partnerships.
Collaborate with organizations like FAMR for guidance on finding relevant opportunities.

Negotiating subcontract terms

Learning how to negotiate for favorable subcontract terms is critical to protecting subcontractors and ensuring the success of the partnership with the prime contract. Here are some pointers to remember as you navigate contract negotiations:

First, research current industry standards and regulations so you are better equipped to negotiate.
To strengthen your position, don’t shy away from highlighting your unique value proposition and contributions to the project while also demonstrating your expertise and track record.
If necessary, seek legal counsel to help you review contracts, minimize risk, and ensure they align with your interests.

Building long-term relationships

As mentioned earlier, networking with other contractors can help you secure new jobs. However, it’s equally important to continue nurturing these relationships for repeat business and word-of-mouth referrals. To do this:

Proactively reach out to prime contractors to express interest in new opportunities.
Focus on delivering results that exceed expectations to grow their trust and your credibility.
Keep communications open with prime contractors to address concerns and resolve issues promptly.

How FAMR can help you succeed as a subcontractor

By following these tips and advice, government subcontractors can position themselves for success and thrive in the competitive federal marketplace. If you’re just starting your subcontracting journey, we recommend utilizing the support of registration specialists, like the ones at FAMR. We are dedicated to assisting small businesses in navigating the federal marketplace regardless if they’re interested in prime contracting or subcontracting.

If you’re already registered, our marketing services can help your subcontracting business present itself in the best possible light. Our FAMR Portal streamlines the browsing and bidding process for contracts and provides a great starting point for jumping into the market with a team of specialists to support you along the way!

Give us a call or reach out to us today to see how we can help position your business for government subcontracting!