The battle to win federal contracts is a marathon, not a sprint. That typifies the strategic thinking among executives at the top Hispanic companies in the government's 8(a) minority business development program.
In the last few years, the pace of the race has quickened with federal government spending surging to $285 billion in fiscal year 2003, a 30 percent increase since 2000. Still, less than a quarter of that money goes to small firms.
"There's no question that over the last couple of years, the federal side has had more positive space than the commercial side," says Vince Bucci, executive vice-president of Force 3, a Maryland-based information technology firm with the greatest federal contracting dollars among Hispanic-owned 8(a) firms in FY2002. "But it's incorrect to think if you are a Department of Defense contractor you are making money hand over fist. It's a good space to be in right now, but you still have to make sure you are working with the right people and the right programs."
In short, becoming a supplier to the U.S. government takes more than a good product or service – it often requires years of experience with the procurement process. Many CEOs of the top 8(a) firms came to their jobs as ex-federal employees or with previous work for large federal suppliers. "You can get in the door other ways but it's so much easier to have a background in it," says Mark Sotomayor, president of Impac Auto Parts, which supplied about $5 million worth of automotive gear to the U.S. Army and Air Force last year.
Mr. Sotomayor once worked for a Pennsylvania company that sold auto parts to the military. That experience gave him an advantage in this highly competitive market.
In fact, competition in federal procurement has increased in the last several years even as the government procurement budget has grown. One reason is "bundling," the practice of grouping many small contracts into one large contract. During the Clinton administration, bundling figured as a favorite way for government to cut costs.
"This is a business of haves and have nots," says Jim Jardon, CEO of Jardon & Howard Technologies, a Florida-based company that provides multimedia training development and contract workers to the federal government. "The big guys want more and the small guys want in. The in-between guys like us are looking for their business niche."
For Mr. Jardon's company, which ranked third among Hispanic-owned firms receiving 8(a) awards in 2002, that means establishing partnerships with larger companies and having diverse business services.
Mr. Jardon, whose heritage traces to Cuba and Spain, is quick to point out that his first career as an Air Force pilot and his partner's experience as a defense contractor gave them a leg up on the competition. "The reason we've been successful is we both understood the federal government from a contracting scenario."
Created in 1969, the 8(a) program helps "small disadvantaged businesses compete in the American economy and access the federal procurement market," according to the Web site for the Small Business Administration. Hispanic executives credit the program with helping their 8(a) companies become more competitive, but not necessarily landing federal contracts. "It was a good thing to kick start the company," says Force 3's Mr. Bucci. "But the 8(a) program has changed so much over the years. In the IT arena, the set-aside business is not as prevalent as it once was."
But CEOs still see great value in the program. "The bid and proposal process is very expensive and the win ratio is not necessarily high," says Mr. Jardon. "By having these opportunities, either through 8(a) or HUBZone programs, where competition is restricted, that reduces your cost of doing business."
"I'm a strong advocate of the 8(a) program," adds Ed Muniz, CEO of Muniz Engineering, a Houston firm that ranks eighth on the Top Hispanic 8(a) Companies directory. "Many companies wouldn't have started without it. But once you get started, you're on your own."
For Mr. Muniz, the program developed his business skills. He notes: "My military training helped me become a good officer and manager, but running a business is a bigger challenge than many of the technical tasks I've done in my life."
In recent years, the 8(a) program has shifted focus to training and technical help. "[It] is not a contracting program," says Al Stubblefield, the SBA's acting associate administrator for business development. "It's a business development program. Contracts are only a tool of the program."
The new emphasis leans toward facilitating partnerships between new and established contractors through the SBA's Mentor-Protégé program. Mentor companies provide their 8(a) protégé with technical and management support, capital through equity investments or loans, subcontract support, and assistance in performing prime contracts through joint ventures. All mentor-protégé relationships are based on SBA-approved written agreements.
The emphasis on training helped Mr. Sotomayor, who encountered a disappointing response from military procurement offices to his firm's 8(a) status.
"We were under the impression that the military would be more educated regarding minority businesses, and once we got that designation they would be looking for our type of minority business," he says. "That really hasn't been the case. They want to know how it would benefit them."
However, building long-term relationships eventually opens doors, according to Mr. Muniz. Back in 1993, he partnered with Science Applications International, a global corporation that provides technical services, to bid on an Air Force contract.
"I had worked in space programs, and I knew how to mitigate risk," Mr. Muniz recalls. "I did some things I would not do again." For instance, he disclosed to the Air Force the names of the engineers who would be working on each program area, but he didn't tell them the firm consisted only of himself and a part-time worker. He had work commitments from the engineers only if he won the bid.
"I knew I had to do something to stand out from the competition," he says. "Opportunities in technical fields for minorities are very limited. … But it never occurred to me that I couldn't succeed."
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