Why Start With Subcontracting

In some cases, typically if your business is young, it will not qualify to contract directly with certain companies or government agencies. In cases like these, you can look into becoming a subcontractor to the company in question by providing goods or services to a business already in their supply chain, also known as a prime contractor. Similar to contracting directly with a larger organization, a subcontractor is subject to adhere to any regulations and contracting standards required to do business with the parent company. Even though you wouldn’t be working directly with the company of your choice, subcontracting can be a great way to help build your business credit and reputation until your business is ready for a prime contract.

The Benefits of Subcontracting

A subcontract can benefit your business in unique ways:

  • When you apply for a prime contract, you can use the work you did as a subcontractor to prove that your company can meet the standards required by the primary companyTweet This
  • Depending on the nature of your relationship with the prime contractor, you can start to develop a relationship with representatives for the primary company.
  • You can build your business credit while you are subcontracting, so that your business credit file will reflect your ability to deliver on your contract when you become a prime contractor.

There are other obvious benefits to subcontracting, like revenue and the opportunity for growth, but if you’ve been unable to obtain a prime contract with the government or a large corporation, the benefits listed above could be huge for your business.

Challenges for Subcontractors

While there are many benefits to subcontracting, there are some challenges. Subcontracting can be used by some corporations as a tactic to increase profits and create competition between outside suppliers that can sometimes result in a subcontractor being considerably underpaid for his/her work. Subcontracting can also distance a company from practices they might be publicly criticized for. For example, a company may need a service that does not align with its mission statement and looks for outside help to fulfill this need. To help protect your company, be mindful of what’s being asked of you and by whom, and try to make sure that this is not the reason that your services are being sought.

Running a business in general can be risky. Be on the lookout for other types of risks your business may face and learn how you can take steps to help manage them.

Getting Started as a Subcontractor

When starting as a subcontractor, you’ll want to do many of the same things as businesses getting started as prime contractors.

  • First, you should get a free D&B D-U-N-S® Number† to establish your business with Dun & Bradstreet. In order to do business with the federal government, you are required to have a D-U-N-S Number and you can get an expedited one for free.
  • Next, you’ll want to start building your business credit file to help impact your scores and ratings, which you can learn more about in the section below.
  • You’ll also want to do your research. Look into certifications for your business, and make note of any certification requirements both the parent and the prime company may have for subcontractors. Make sure you have the appropriate licenses and insurance. And if you are contracting in a new area or with a new type of company, make sure that you are aware of the any rules and regulations that you may not be familiar with.
  • Lastly, you’ll want to create a one-sheet capabilities statement to include when you submit your proposals, which will briefly describe your business and why it’s best suited to fulfill a contract. We have a D&B B2B podcast episode that covers what to include in your one-sheet and how to best optimize it to get you started.

Building Your Business Credit as a Subcontractor

Subcontracting can help you build your business credit and establish your company’s reputation. If your vendors submit trade references** to Dun & Bradstreet during the course of your contract, your on-time and in-full payments to those companies can help build your business credit profile, and impact your scores and ratings. Your Supplier Evaluation Rating in particular could potentially impact how favorably your company is perceived during a bid down the line.

Getting your free D&B D-U-N-S Number is the first step in building your business credit, and once you’ve done that, you can monitor changes to your scores and ratings for free with CreditSignal®*, or start impacting your file by submitting trade references with CreditBuilder™. Strong business credit can also help you appear more reliable to lenders, which may help you get the funding you may need to fulfill certain contracts. Learn more about building your business credit to get started.

Finding the Right Subcontracting Opportunity

Supplier Connection

Marketing yourself as a subcontractor to larger companies is another challenge you may face. Luckily, these companies tend to realize that it can be difficult for a small business owner to make themselves known to big corporations, and several of them got to together to create a free web-based portal called Supplier Connection. With Supplier Connection, small business owners can create a profile for their business and reach out to many different companies at once. Supplier Connection provides small business in specific industries with a standard and streamlined way to register company information, share business practices and connect with both large and small business to maximize growth opportunities. The site is also a great way for large companies to search for subcontractors and a good start to finding the right opportunity for your business.

Other Steps to Take

You may also want to follow these steps to help find the right opportunity:

1. Search for prime contractors that work for government agencies where there may be a good fit for your products or the services. For example, a manufacturer of ship parts may want to seek out a company such as Boeing, which supplies to the U.S. Government and more.

2. Research the company’s mission, market, current and past contracts. Are the company goals in line with your own and can you help the company accomplish them? Do you believe win the company’s mission and share similar values? These are all things to consider when searching for a subcontracting opportunity.

3. Check to see if you need to register to apply as a subcontractor in their system.

4. Review the requirements often set by companies such as Boeing on our government contracting page.

5. Identify your main point of contact at the company and build a relationship with them. The better the relationship you can build with the company’s Small Business Liaison Officer or Diversity Officer, the more they can learn about you, your business, and your capabilities. Trust plays a huge role in contracting, and by establishing a relationship, you can help your contact trust you and your business.

6. Be persistent. Once you’ve found the right opportunity, this is where the real work begins. Your point of contact is likely very busy and constantly bombarded with bids. Follow up with them consistently and be persistent, but respectful, in your mission to work with them. Your dedication will show and may help you be more strongly considered than companies who may not show as much desire.

Subcontracting can be a very useful way to put your business on the map. Subcontracting can help you build a strong reputation by showcasing the quality of your company’s work, it’s a great tool for building relationships with big companies or the government, and is a good first start to building your business credit. If used carefully and responsibly, subcontracting can be the perfect way for young businesses that may not be able to secure prime contracts to get started.

Photo Credit: allmka, Twenty20