How to Start Subcontracting Government Contracts

TL;DR

Register an LLC with SAM.gov, find a service contract you understand, secure a qualified subcontractor and written quote, then submit a researched price that covers the subcontractor, overhead, and unforeseen costs. The model earns the difference between the government payment and subcontractor cost, but bidders must review every solicitation carefully because some contracts restrict subcontracting or require the prime contractor to perform at least 51% of the work.

Transcript

My subcontractor charged me 41,000 and I charged the government 52,000. So I made 11,000 profit in just a 2e period. The first contract that I bid on was the first contract that I won. That was kind of when I was like, "Okay, well this is really easy." >> $10,000 net profit to you every year for 5 years just from making a deal. You really don't do ... Read More

Key Insights

• Government contract brokering is a model in which a prime contractor wins an award, hires a service provider to perform the required work, invoices the government, pays the subcontractor, and retains the difference after accounting for overhead and unforeseen costs.
• SAM.gov is the free public website identified for registering a business and finding federal contract opportunities. Natalie compares registration to completing a job application because the process asks for information about the company before it can begin submitting bids.
• Service contracts are presented as easier starting opportunities than product contracts because a bidder can negotiate payment timing directly with local providers. Product fulfillment may introduce additional variables involving manufacturers, approved countries, certifications, delivery requirements, and manufacturing standards.
• A subcontractor quote should be secured before submitting a government bid. Natalie warns that winning first and searching for a provider afterward can leave the prime contractor responsible for work that it has no qualified or willing company available to perform.
• Pricing should be based on publicly available historical government spending data, not an arbitrary percentage markup. The proposed price should incorporate the subcontractor's quote, company overhead, and allowance for unforeseen costs while remaining appropriate for comparable government purchases.
• Natalie's first contract was a five-year formalin disposal award in California. Her subcontractor quoted about $700 per pickup, she bid $1,500, and the agency estimated 14 to 16 pickups annually, leaving an expected margin of $800 for each completed pickup.
• Government contracting can be managed remotely when a prime contractor teams with a provider near the performance location. Natalie describes bidding on work outside her home state, including landscaping two time zones away, while local subcontractors carry out the physical services.
• Subcontracting limitations depend on the individual contract. The description states that not every award contains such a clause, but when the cited limitation applies, the company must perform at least 51% of the work through a compliant structure, including an employee-leasing teaming arrangement or qualifying similarly situated entities.

Questions & Answers

Q: How do you start bidding on government contracts?

Start by forming an LLC or otherwise registering a small business with the state, then register the company for free on SAM.gov. Search the available solicitations for a service requirement that you can clearly understand. Before bidding, contact qualified providers, obtain a quote, confirm that one is willing to perform the work, study historical government spending, review the contract requirements, and submit a price covering the provider, overhead, and unforeseen costs.

Q: How does subcontracting a government contract make money?

The prime contractor bids a price that is higher than the amount a subcontractor will charge to complete the service. After an award, the subcontractor performs the work, the prime contractor invoices the government, receives payment, and then pays the provider. The remaining amount can become profit after overhead and unforeseen costs. Natalie illustrates the model with a $41,000 subcontractor charge and a $52,000 government price, producing $11,000 in stated profit.

Q: What government contracts are easiest for beginners to evaluate?

Natalie recommends beginning with service contracts whose requirements are understandable and whose solicitation packages are not overwhelmingly complex. She avoids opportunities with numerous attachments when she cannot determine what the agency wants. Services such as painting, landscaping, and waste disposal can also make it easier to speak directly with a provider about the work and payment timing than product orders involving manufacturers, certifications, approved countries, and technical standards.

Q: Why should you get a subcontractor quote before bidding?

A subcontractor quote establishes the actual cost of performing the work and confirms that a capable provider is willing to accept the assignment. Natalie always obtains this commitment before submitting a proposal because winning without anyone available to fulfill the requirement could create a serious performance problem. The quote also provides the base for a researched bid that accounts for overhead, unforeseen costs, and historical government pricing.

Q: How should a government contractor calculate its markup?

The description says markups should come from public historical government spending data rather than arbitrary percentages. A bidder should research what the government previously paid for similar work, obtain a current subcontractor quote, and include overhead and possible unforeseen costs. Natalie used this basic structure in her first award, where the service provider quoted about $700 per pickup and she submitted a government price of $1,500 per pickup.

Q: Can you win a government contract without industry experience?

Natalie says she had no background in formalin or hazardous waste when she submitted her first bid. She understood that the requirement involved hazardous waste disposal, contacted companies that possessed the relevant knowledge, obtained a provider's quote shortly before the deadline, added her price, and won. Her account suggests that direct technical experience was not required for that award, but the prime contractor still needed a qualified subcontractor and a compliant proposal.

Q: Can government contracts be managed from another state?

Natalie describes managing contracts without living where the services are performed. Her first award required formalin disposal in California while she was in Miami, and the introduction also mentions landscaping work two time zones away. The model is to locate a qualified provider near the contract site, obtain its quote, include the prime contractor's researched price, coordinate performance, invoice the government, and pay the provider after receiving payment.

Q: What subcontracting restrictions must government bidders check?

Every solicitation must be reviewed because the description states that not every government contract includes a limitation on subcontracting. When the cited limitation applies, the company is required to perform at least 51% of the work. The source identifies two compliant approaches: negotiating a teaming arrangement that leases the subcontractor's employees to the prime contractor, or using a subcontractor that also qualifies as a similarly situated entity, such as another small business.

Summary & Key Takeaways

• Natalie describes a government contracting model in which a small business finds opportunities through SAM.gov, obtains quotes from service providers, and submits a higher researched price to the government. If awarded the contract, the business coordinates the subcontractor, invoices the agency, receives payment, pays the provider, and retains the remaining margin as profit.

• Her first award involved formalin disposal in California. A hazardous waste company quoted about $700 per pickup, while she bid $1,500. The agency estimated 14 to 16 pickups annually under a five-year contract lasting until 2029, creating a potential margin of $800 each time the subcontractor completes a pickup.

• The recommended process emphasizes understandable service contracts, qualified providers, historical spending research, and compliance. Natalie advises securing a willing subcontractor before bidding and using public records to set pricing instead of choosing arbitrary markups. Bidders must also examine solicitation clauses, including any applicable limitation requiring the prime contractor to perform at least 51% of the work.