As small businesses grow and get into mid-tier class, these firms are no longer eligible for small business set-asides contracts. As a result, these firms now must contend with the common perception about being unfairly “squeezed” one of the biggest disadvantages of being a mid-tier player in the federal market.
There is of course some truth to this notion. On one end, of course, is the pressure form leaving the set-aside category. On the other end, and perhaps the greatest source of pressure from mid-tier firms, trying to compete with large firms that have the resources, access, and flexible manpower to win the large contract awards.
Further, market trends have continued to be problematic for the middle tier. One trend that continues to be a significant barrier to mid-tier firms has been the government’s increased use of multiple-award vehicles over the past decade. With the subsequent reduction in single-award contracts, the result was that larger contractors began to compete for smaller task orders more than ever before, driving down prices even further.
However, the one market trend that has been especially pernicious for the middle tier has been the increased use of lowest price/technically acceptable (LPTA) contracting. LPTA contracting has resulted in favoring those firms that can best afford to compete on price, which gives a particular advantage to large firms who can compete this way through significant economies of scale.
To compete in this market, mid-tier firms need to consider both internal and external growth strategies. These types of dual-purposed strategies are often referred to as “focused scale.”
The “focus” part of the strategy comes in part by differentiating the technology solutions offered by mid-tier firms. With LPTA, there is little desire to have differentiated solutions, and thus price is the only real factor of consequence. However, offering a differentiated technology as means to buttress price, and in areas where the customer has the greatest risk and fear of performance failures. This is a strategy to minimize LPTA contracts, and allow more flexible middle-tier players to compete based on technological innovation, rather than price.
The “scale” part comes to play through teaming relationships, joint ventures, and acquiring smaller companies that have both the desired customer relationships, and the subsequent contracts to expand capabilities and solutions. This part of the strategy is of particular importance, since the government continues to increase the use of a few large multiple-award vehicles, with the net effect of fewer single-award contracts, fewer opportunities to get a seat on these multiple-award vehicles, and more competition as larger contractors are competing for more and smaller task orders.
Being a mid-tier firm has its challenges, but having graduated from small to mid-tier requires a retooling of growth and business development strategies, along with a refocus on how to get to the next level.