Subcontracting: The Lower-Risk Entry Point

Subcontracting means performing work under a prime contractor who holds the government contract. Your contractual relationship is with the prime, not with the government. The prime manages the overall effort, interfaces with the government customer, and assumes the contractual obligations. You perform a defined scope of work and invoice the prime.

Advantages of Subcontracting

• Lower barrier to entry. You do not need to win a competitive source selection or hold a contract vehicle. The prime selects you based on your capabilities.
• Builds past performance. Subcontract work creates a track record you can cite on future proposals, both as a sub and eventually as a prime. See our Past Performance Guide.
• Learns the system. Working under an experienced prime teaches you how federal contracting works — reporting requirements, security procedures, government billing, quality standards, and customer expectations.
• Lower compliance burden. The prime handles most FAR compliance, invoicing the government, CPARS, and direct government reporting. You comply with your subcontract terms.
• Steady revenue. Subcontracts often provide predictable revenue streams without the cost and risk of proposal writing.

Disadvantages of Subcontracting

• Lower margins. The prime takes a management fee, and your rates are typically lower than what the prime bills the government.
• Limited visibility. The government customer may not know your name or your contribution. Building brand recognition is harder as a sub.
• Dependent on the prime. If the prime loses the contract, you lose your work. If the prime has financial problems, your payments may be delayed.
• No direct CPARS. CPARS assessments go to the prime, not to you. You need the prime's cooperation to document your performance for future proposals.
• Limited growth ceiling. You can only grow your subcontract revenue as fast as the prime's contract allows or as the prime is willing to expand your role.

Prime Contracting: Higher Risk, Higher Reward

As a prime contractor, you hold the government contract directly. You are responsible for all deliverables, compliance, reporting, and performance. The government pays you directly, and you manage any subcontractors. The contracting officer is your customer.

Advantages of Prime Contracting

• Higher revenue and margins. You capture the full contract value (minus subcontractor costs) rather than receiving discounted subcontract rates.
• Direct customer relationship. You build relationships with government decision-makers, understand their needs, and position for follow-on work.
• CPARS in your name. Performance assessments accrue directly to your company, building your official past performance record.
• Brand building. Your company name appears in FPDS, USASpending.gov, and agency records. You build a public track record.
• Control. You control staffing, approach, quality, and the overall customer experience.

Disadvantages of Prime Contracting

• Proposal costs. Competitive proposals are expensive to write — $20,000 to $200,000+ in labor depending on the contract size and complexity.
• Low win rates. Win rates of 10-30% are common on competitive procurements. You will lose more often than you win.
• Full compliance burden. You are responsible for all FAR clauses, reporting requirements, subcontracting plans, cybersecurity compliance, and contract administration.
• Payment risk. The government pays Net-30 (or slower). You must fund payroll and operations during the gap between incurring costs and receiving payment.
• Performance risk. Contract performance problems — even caused by your subcontractors — are your responsibility. Termination for default goes on your record.

Finding Prime Contractors to Team With

If you choose the subcontracting path, you need to find primes who need your capabilities. This is not passive — it requires active marketing and relationship building.

Where to Find Prime Contractors

• USASpending.gov and FPDS — Search for contracts in your industry and identify the current prime contractors. Our Contractor Directory provides profiles of active federal contractors.
• SAM.gov — Search the entity registration database to find companies registered under your NAICS codes.
• SBA SubNet — A database where prime contractors post subcontracting opportunities.
• Industry days and pre-solicitation conferences — Agencies hold these events to bring primes and subs together before major procurements.
• APEX Accelerators — Your local APEX Accelerator (formerly PTAC) can help identify teaming opportunities and make introductions.
• Industry associations — Organizations like NDIA, PSC, AFCEA, and industry-specific groups host networking events and maintain member directories.

How to Approach a Prime

Primes are looking for subcontractors who bring specific value — technical capabilities, certifications, past performance, key personnel, or socioeconomic status. When approaching a prime, lead with what you bring to the table, not what you need from them. Prepare a concise capability statement (two pages maximum) that describes your relevant experience, certifications, key personnel, and differentiators.

Subcontracting Plan Requirements

For contracts exceeding $750,000 ($1.5 million for construction), FAR 52.219-9 requires prime contractors (other than small businesses) to submit a subcontracting plan with percentage goals for subcontracting to small business concerns, including small disadvantaged businesses, women-owned small businesses, HUBZone businesses, veteran-owned small businesses, and service-disabled veteran-owned small businesses.

This is important for small businesses seeking subcontracting opportunities because large primes are contractually obligated to meet these subcontracting goals. They actively seek small business subcontractors — particularly those with SBA certifications — to satisfy their plan requirements. The plan is a tool of accountability: primes report actual subcontracting achievements versus their goals, and agencies consider subcontracting compliance in contractor performance evaluations.

Mentor-Protege Relationships

The SBA All Small Mentor-Protege Program (13 CFR 125.9) formalizes the relationship between an experienced mentor firm and a small business protege. The mentor provides business development assistance — management guidance, technical expertise, financial assistance, and contracting support. The primary contracting benefit is that the mentor and protege can form joint ventures that compete as small businesses using the protege's size and socioeconomic status.

Mentor-protege relationships work best when both parties have genuine business reasons to collaborate. The mentor benefits from accessing set-aside markets and building a pipeline of capable subcontractors. The protege benefits from the mentor's resources, past performance, and institutional knowledge. See the Small Business Certifications Guide for details on program requirements.

Joint Ventures

Joint ventures (JVs) allow two or more businesses to combine capabilities for a specific contract or set of contracts. In the small business context, joint ventures are most powerful under the SBA's mentor-protege program, where the JV entity can compete as small using the protege's size determination.

Unpopulated vs. Populated Joint Ventures

An unpopulated JV has no employees of its own — all work is performed by the JV members' employees assigned to the venture. A populated JV has its own employees. Unpopulated JVs are more common in federal contracting because they are simpler to establish and dissolve.

SBA Requirements for Small Business JVs

JVs competing as small businesses must comply with SBA regulations (13 CFR 121.103(h) and 125.8). The small business partner must perform at least 40% of the work (down from the previous 51% requirement for certain certifications). The JV must have a JV agreement that satisfies SBA requirements, and the JV must be approved in advance for program-specific set-asides (8(a), HUBZone, WOSB, SDVOSB).

Teaming Agreements

A teaming agreement is a pre-award arrangement between two or more companies to pursue a specific contract opportunity. The teaming agreement defines each party's role (prime vs. sub, or members of a JV), the scope of work each will perform, and the business terms. Teaming agreements are not binding contracts for the work — they are agreements to team if the contract is awarded.

Key Provisions in a Teaming Agreement

• Scope of work — What each party will perform
• Exclusivity — Whether the parties are exclusive to this team for this opportunity
• Cost/price sharing — How proposal costs are shared (often the prime bears most costs)
• Workshare percentages — The percentage of contract value each party expects to perform
• Terms and conditions — Flow-down of relevant contract terms from the prime agreement
• Termination — How and when the agreement can be terminated
• Intellectual property — Ownership of proposal materials and contract deliverables

When to Transition from Sub to Prime

There is no universal timeline, but several indicators suggest you are ready to pursue prime contracts:

• You have relevant past performance. At least two to three references where you performed work similar to what you would prime.
• You have key personnel. A program manager, project leads, and technical staff who can be named in a proposal and have relevant credentials.
• You understand the customer. You have relationships with agency personnel, understand their mission, and know their procurement patterns.
• You have financial capacity. Cash reserves or a line of credit to fund operations during the gap between incurring costs and receiving payment, plus the ability to absorb proposal costs on losses.
• You have infrastructure. Accounting systems, HR processes, quality management, and — if applicable — facility clearances and cybersecurity compliance (CMMC, NIST 800-171).
• You have a pipeline. Identified specific contract opportunities where you have a realistic chance of winning as the prime.

Protecting Yourself as a Subcontractor

Subcontractors are vulnerable to late payment, scope changes, and termination by the prime. Protect yourself with these practices:

• Get it in writing. Every subcontract should have a formal subcontract agreement with clear scope, rates, payment terms, and termination provisions.
• Include a prompt payment clause. FAR 52.219-8 requires primes to pay subcontractors within 90 days of receiving payment from the government. Many primes pay within 30 days.
• Document your work. Maintain records of deliverables, hours, approvals, and communications in case of disputes.
• Know your rights. The government has limited privity with subcontractors, but agencies take subcontractor payment issues seriously — especially when the sub is a small business.
• Diversify. Do not depend on a single prime or a single contract for all your revenue.

• Can I cite subcontract work as past performance when bidding as a prime?

  Yes. Subcontract past performance is generally accepted in federal source selections, though it typically carries less weight than prime contract experience. Clearly describe your specific scope, deliverables, and contribution rather than the overall contract. Obtain a letter from the prime confirming your performance quality. Identify the government COR who oversaw your work as a reference whenever possible.

• How do I find subcontracting opportunities?

  Key sources include SBA SubNet (a database of subcontracting opportunities posted by primes), agency-hosted industry days, APEX Accelerators (formerly PTACs), prime contractor websites, and direct outreach based on research from USASpending.gov and the Contractor Directory. Networking at industry events is also effective — many teaming relationships start with face-to-face meetings.

• What percentage of work must a small business prime perform itself?

  Under the SBA's limitations on subcontracting rule (13 CFR 125.6), a small business prime on a set-aside contract must perform a certain percentage of the work itself. For services, the prime must perform at least 50% of the cost of personnel. For supplies, at least 50% of the cost of manufacturing. For construction, at least 15% of the cost with its own employees. For mixed contracts, the applicable percentage depends on the primary work type.

• What is a teaming agreement and is it binding?

  A teaming agreement is a pre-award arrangement between companies to pursue a specific contract opportunity together. It defines roles, workshare, and terms. Teaming agreements are not contracts for the work itself — they are agreements to form a prime-sub or JV relationship if awarded. Enforceability varies by jurisdiction, and some courts have treated teaming agreements as non-binding agreements to agree. Include clear termination provisions and consider applicable state law.

• Can a large business subcontract to a small business on a small business set-aside?

  No. On a small business set-aside, only small businesses can be prime contractors. However, a small business prime can subcontract to a large business, subject to the limitations on subcontracting rules. The prime must still perform the required percentage of work. Going the other direction, large business primes on unrestricted contracts routinely subcontract to small businesses to meet their subcontracting plan goals.