Billions of dollars in cuts in federal spending have amped up the competition for government contracts, but hundreds of NH companies are still carving out a piece of the $450 billion pie for themselves. “The total number of dollars spent by the government dropped about 18 percent in the last five years from $540 billion to about $450 billion,” says Dave Pease, of the NH Government Contracting Assistance Center. “However, those are still enormous numbers.”
In NH alone, the government spent about $2 billion in fiscal year 2014, with small businesses accounting for $703 million of that business. “There are some very small companies that participate in the government contracting business. Size is not an important factor. Having a unique or superior product or service is what’s important,” says Pease, program manager for the Center, a national program that provides specialized and professional assistance to businesses seeking help with federal and state government contracting and subcontracting opportunities.
Take, for example, Appledore Marine Engineering in Portsmouth. The company has 22 employees, the majority of whom are engineers and professional divers. “One of the things we’ve done is realize we can’t do everything as a small company, so we picked one small niche and we have spent time refining it,” says company president Noah Elwood. “We are marine structural engineers who work exclusively on projects in the marine environment.”
Appledore divers participate in dive training operations. Courtesy of Appledore.
In the past five years, Elwood says, Appledore’s design and engineering of government dry docks has led to more than $50 million in construction projects. “Projects in the marine environment can be extremely complicated,” he says. “We’re able to have the same engineers who do the underwater inspection also be the design engineer, then when it goes to construction they are the construction managers.” That ingenuity has landed Appledore millions of dollars in government contracts internationally, primarily for the U.S. Navy and the U.S. Coast Guard. Over the next five years, Appledore has been awarded up to $10 million in contracts at the Portsmouth Naval Shipyard and another $22 million for waterfront inspections for the U.S. Navy, Elwood says.
Kyle Vandemoer, a diver at Appledore, measures steel thickness. Courtesy of Appledore.
The fact is, NH companies of all sizes providing a myriad of products and services have been successful doing business with the government. DCI, a family-owned furniture manufacturer in Lisbon with 200 employees, sells globally to the military for its housing. In Nashua, seasoned former U.S. Army Special Forces Green Berets, working for Arrow Security & Training, plan, manage and implement tailored military training and security service contracts worldwide for the government. R.B. Allen Co. Inc. in North Hampton, a supplier of engineered fire alarm systems, designed a temporary communication and alarm system for government submarines to be used as they are retrofitted.
“Businesses are incredibly creative at figuring out ways to create competitive advantages,” Pease says. “The real core issue is identifying what you do really, really well, because what you can do at least as well, and hopefully better, than the other guy and as cheap, or cheaper, than the other guy, that’s where you’re going to succeed with the government.”
Patience and Expertise Required
Everyone agrees breaking into the government contracting business takes time. “We started first with very small contracts where we performed really well,” says Elwood of Appledore. “With the government, they rate you on each contract. Basically we got exceptional ratings and continued to build our reputation one project at a time. We started locally and then we grew to working on contracts all over the world.”
The government contracting system also takes time to learn and is best navigated with an expert. “It is very, very different from business to business,” Pease says. “If you had to learn all of those differences the hard way, most companies would become discouraged and give up.” For instance, there are different governing rules, accounting rules and record keeping requirements than commonly found in the private sector.
Instead there are 10,000 pages of federal procurement rules. “It’s an enormously complex set or rules,” Pease says, adding that Congress keeps changing them.
Yet Pease and others—like Amy Rodman, business advisor with the Center for Women’s Business Advancement at Southern NH University—say for many companies it is a worthwhile market. “It’s a bit of a learning curve and it’s very steep. But once you’re well along the learning curve, I don’t think it takes any more time than any other business,” Pease says.
Success, say the experts, depends on the resources you dedicate to the process. Although Pease says there is “no one size fits all,” it typically takes a company with a consultant or in-house expertise a few months to get up to speed, while those with fewer resources or starting from scratch may need a couple of years.
Small Business Advantages
And competition for government contracts has heated up as dollars have dwindled. In some cases there continues to be “substantial advantages” in the federal system for small businesses, Pease says. “All contracts between $3,500 and $150,000 should be set aside for small businesses,” he says. “If they can’t be, they have to write an explanation of why that wasn’t done.” In addition, there are instances in which even larger contracts are set aside. “We had a dramatic example a couple of years ago with the $34 million Job Corps center in Manchester,” he says. “It was a total small business set-aside.” While contracts above $150,000 are not required to be set aside for small businesses, it is strongly encouraged, if possible, Pease says.
As far as defining a small business, that’s a bit more complicated. “The SBA [Small Business Administration] sets a small business size standard for each of the 2,000 or so NAICS [North American Industry Classification System] codes used to define business.” For example, a NH turf farm is considered small only if its three-year average annual revenue does not exceed $700,000, while a small arms manufacturer is considered small as long as it has no more than 1,000 employees, Pease says.
The government’s set-aside goals reserve a certain percentage of contracts exclusively for various socioeconomic groups, including small businesses, women-owned businesses, service-disabled veteran-owned small businesses, veteran-owned small businesses and historically under-utilized business zone (HUBZone) small business concerns. That has allowed the amount won by small businesses to stay fairly stable and even rise in 2015 from the government’s goal of 23 percent to nearly 25 percent, Pease says.
“There are a tremendous amount of women-owned businesses that would be a great fit,” Rodman says. “Sometimes it’s not a unique product or service, sometimes it’s more of a common product or service, but the fact that it’s a woman-owned business gives them a leg up opportunity to take advantage of one of these great set-asides.” The CWBA has been hosting events to demystify government contracting. “In the U.S., there is a goal for 5 percent of government contracts to go to women-owned businesses,” she says. “We haven’t met that yet,” despite the fact there are approximately 10 million businesses in the country owned by women and that the number of women-owned businesses grew at one-and-half-times the national average between 1997 and 2014.
Gov. Jeanne Shaheen has been an advocate for the 5 percent set-aside “to work the way it should,” Rodman says. “So we do have strong support here in New Hampshire.” Shaheen was the sponsor of the Women’s Small Business Procurement Parity Act passed in the House in 2014. As Shaheen wrote in Forbes Magazine, women entrepreneurs have demanded “reforms aimed at increasing women-owned small businesses’ access to federal contracts, capital and business counseling,” she says. “The Parity Act will give women-owned small businesses more opportunities to compete for federal contracts, on par with other traditionally disadvantaged groups.”
For any NH businesses contemplating testing the waters, the NH Government Contracting Assistance Center has research tools available free of charge.
Certainly, for many, entry into the government contracting business comes through subcontracting or partnering with another company. Larger companies, like BAE Systems, are increasingly working with subcontractors as a cost efficiency. Jeremy Tondreault, vice president of operations at BAE Systems in Nashua, says a typical product now “has somewhere between 50 to 80 percent of the product cost outsourced.” He says that’s a definite shift from the days when they operated their own production scale machine shop and produced their own cables and electronic substrates and boards.
“Our customers come to us for state-of-the-art technology solutions so it is important that we are quite deliberate in defining which technologies are discriminating for us and focus on developing those in-house,” Tondreault says. “For everything else, we focus on finding the most cost-effective solution for our customers whether that solution is in-house or by partnering with a smaller company or subcontractor.” BAE Systems subcontracted nearly $90 million with both small and large businesses in NH last year, he says.
BAE Systems’ 4,000 employees in the state provide high-tech, electronics-based products to the U.S. Department of Defense. Those include electronic systems that protect multiple military aircraft from Radar and RF guided missile threats; infrared systems that protect multiple helicopters from heat seeking missile threats; precision guidance systems that enable missile platforms to have a high degree of accuracy and hand-held night vision sensors that allow soldiers to operate effectively at night, he says.
Tondreault notes that BAE Systems electronics business, headquartered in NH, “rarely competes head-to-head with small companies for a contract as we typically compete with other larger aerospace and defense companies. This is because the products we provide typically require multiple, sophisticated technologies that require a breadth of technical capability in systems engineering and technology development that small businesses do not generally possess.” However, he adds, BAE Systems “pride ourselves on our capability to partner with smaller companies to bring unique technologies and best value solutions to our customers.”
At any given time, the Contracting Center provides free consulting to about 400 companies in the state. “One of the bits of value we add is that we help a company get the information they need to make an informed decision about what’s going to be required of them and whether it makes sense for them on a business basis” to pursue government contracting, he says. “It can be very rewarding, but it’s not easy and it’s not for everybody. I don’t think anyone, from the defense giants like BAE Systems and Raytheon on down, would say it’s easy money.”
But one thing is for sure. “A lot of the $1.5 to $2 billion that comes into the state every year goes to tens of thousands of high-quality jobs, whether in service or manufacturing.,” Pease says. “It really strengthens the state’s economy a great deal.”
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