Source: SBA, FY 2001 Annual Report to Congress.
The SBA's own statistics illustrate the dangers of depending on 8(a) to win big contracts. In FY2001, only 37 percent of the 640 Hispanic-owned 8(a) businesses that were registered received contracts worth at least $1 million. Overall, Hispanic firms received $1.06 billion, or 24 percent of the total value of all 8(a) contracts awarded that year. The top 10 companies, which made up less than 2 percent of the Hispanic firms in the program, accounted for 14.1 percent of all contract money awarded to Hispanic 8(a) businesses.
But the top companies also target some of the government's biggest needs: construction, computer networking, software, staffing, and food service. And CEOs of the top 8(a) firms say they either had previous experience in federal procurement or hired somebody who did. They also studied government procurement and marketing cycles, agency "corporate cultures," and the pricing strategies and accounting protocols unique to the public sector. Their 8(a) contracts were part of a long-term business plan, so they marketed their companies primarily as competitive bidders, not 8(a) firms.
In many ways, Maryland-based Force 3 typifies the success of these companies. The company designs, installs, and services computer networks and resells hardware. Force 3's largest customer is the Air Force, but the company has landed contracts with more than 21 federal government and military customers.
Mr. Cintron began Force 3 in 1991 as a three-man shop. The company posted revenue of $2 million in 1992 and received 8(a) certification in 1994. Immediately, Mr. Cintron and his partners began studying the program. "The SBA had a lot of canned resources and advice, and we didn't find much of it useful," says Tim Carney, Force 3's vice-president of contract programs. Eager for customers, the two men attended several SBA 8(a) forums and buttonholed prime contractors during breaks to market their company, seek advice, and form relationships.
While their efforts paid off, rapid growth strained customer service and order-tracking systems, which Force 3 had not fully automated. The company upgraded the processes in 1995. Revenue reached $24 million that year and soared to $97 million by 2001. In 2002, Force 3's last full year under the 8(a) banner, contracts in the program accounted for only 12 percent of the company's $145 million in revenue. The company graduated from 8(a) in 2003 and expects revenue for this year to reach $165 million.
While Force 3 used its Washington headquarters as a base for landing contracts, geography seemed to work against Selrico Services. After more than a decade as an executive in the food service industry, Mr. Aleman founded Selrico in 1990. The company received 8(a) certification in 1993.
Initially, the company sought contracts only from military bases in the San Antonio area. In 1994, the company won its first 8(a) food service deal, a $600,000-per-year, four-year contract with nearby Brooks Air Force Base. But it was tough to get additional business from local military bases, and when the company did, it sometimes lost money. "We low-balled our offers too much to get contracts," says Mr. Aleman. "The first few years were about learning from mistakes and building a reputation."
Eventually, Mr. Aleman shifted strategy and sought military contracts nationwide and overseas. Soon, he signed a deal with Anderson Air Force Base in Guam. Selrico Services went on to do business with dozens of other military installations, the U.S. Coast Guard, and the 2002 Winter Olympics in Salt Lake City. The company was among the contractors that recently built one of the largest U.S. military mess halls in Iraq, which is named after comedian Bob Hope.
Selrico graduated from the 8(a) program in March 2002. That year, the company posted sales of about $29 million, and 8(a) contracts accounted for nearly 60 percent of revenue. The last of the 8(a) contracts will expire in three years, but Mr. Aleman expects growth to continue. Sales will approach $50 million by the end of 2004, he predicts.
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