The Role of Contract Management in Boosting Small Business Success

The government is responsible for creating an enabling environment for small businesses to thrive. Considering small businesses in government contract solicitations is among the factors that create an enabling environment for small businesses (Bartholomew, 2022). Governments allow these businesses to participate in contract solicitations to maintain and strengthen the general economy. According to Sadeh et al. (2021), every project incorporating small businesses creates a win-win situation for the government, contracts, employees, and the community they serve. This paper will explore the benefits of subcontracting and why organizations should consider small businesses during contract solicitations.

Hiring small businesses reduces project risks while maximizing expected value since these small firms tend to specialize in their field. The specialization also leads to increased project completion speed with improved work quality (Bartholomew, 2022). Large businesses usually involve significant bureaucracy that ends up taking time; small businesses tend to reduce project duration with high qualifications in planning. Organizations that win government contracts may also be unable to complete projects autonomously since some projects may require specialized equipment or specialists that may be insufficient in a given company. Thus, subcontractors from small businesses can help the organization complete the project on time without the risk of penalties and fines.

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Organizations can benefit from subcontracting small businesses. Businesses that subcontract small businesses are more likely to adapt to economic cycles. Industries tend to have periods of growth and contraction, and organizations that seek subcontractor services can adapt to the shift in demand effectively. Organizations are able to maintain significant flexibility having the ability to ramp up employees quickly without the need to lay off workers during low season.

Subcontracting is cost-efficient and risk-averse. When businesses require more staff, the most effective hiring mode is subcontracting, as it is cost-effective compared to hiring new full-time employees (Dilger & Blackford, 2019). Additionally, subcontracting allows the organization to hire niche experience reducing risks. While in some cases, subcontractors can be more costly than self-performing in-house, it is primarily cost-efficient in numerous cases. Subcontractors are not provided with office space, equipment, or required benefits. It also reduces an organization’s responsibility to pay a full-time salary and employee taxes. Hiring a subcontractor is estimated to be about 25% more cost-effective.

Hiring subcontractors limit the organization’s capital investments. Organizations that hire small business subcontractors are able to access capital equipment and skill upgrade without making a financial investment. The income received by the subcontractors is used to upgrade their capital equipment and train their employees hence the limited spending (Dilger & Blackford, 2019). Saving on capital investment is highly associated with the aerospace industry.

Hiring subcontractors allows organizations to focus on their strengths. Organizations tend to have specific strengths and skills; therefore, when they use subcontractors, they are able to quickly expand their offering without the need for employing extra staff. Organizations are able to take on more and larger specialized projects without the need for additional help. For instance, governments hire shipping building companies to undertake massive projects requiring years of design and construction; thus, the organizations tend to subcontract various small businesses in design, engineering, integration, procurement, testing, and delivery to limit over-diversification (Dilger & Blackford, 2019).

Hiring subcontractors offers mutual benefit to both the organization and the subcontractor. Small businesses are able to participate in large projects that they otherwise cannot manage by themselves. Sometimes, small businesses are not even eligible to bid for certain projects even when they have full-fledged design and production capacity (Elazouni et al., 2023). Therefore, while the organization benefits from specialized skills, small businesses enjoy the benefits of large organizations without the need for massive investment capacity.

Hiring subcontractors also helps in reducing costs. Large projects usually lead to cost overruns, which makes it important to hire subcontractors who are paid per project rather than per duration, avoiding particularly costly overruns.

Prime contractors are usually responsible for conducting feasibility studies. Organizations are required to assess risks relating to project implementation and the organization’s resources and skills in addition to the skills and resources of the subcontractor. Therefore, prime contractors perform studies for technology selection, investment projects, control of the volume and work quality, choice of suppliers, risk management, and contractor supervision. The contractors tend to abstain from administrative expenses required to manage government contracts. Such expenses include office supplies, salaries, and equipment (Sadeh et al., 2021). Accurate control over operations is needed when numerous subcontractors, such as those in the shipping industry, are involved in a project. Thus, businesses are required to submit subcontract statements periodically. Prime contractors are required to submit these reports constantly, even when projects are dormant.

In conclusion, the responsibility of ensuring information accuracy entered in reports lies with the prime contractor. The prime contractor is responsible for ensuring that subcontractors involved are supervised at every project stage, with inconsistency in technology or quality resulting in suspension or termination of contracts or renegotiation. The prime contractor’s prerogative includes claims against contract termination, penalties, and other critical relations. Additionally, financial settlement with the subcontractors is also a responsibility of the prime contractor.

References

Bartholomew, S. H. (2022). 3. The Prime Contract—An Overview. Construction Contracting.

Bartholomew, S. H. (2022). 7. Purchase Order and Subcontract Agreements. Construction Contracting.

Dilger, R. J., & Blackford, R. C. (2019). An overview of small business contracting.

Elazouni, A., Gajpal, Y., & Fares, A. (2023). Negotiating win-win payment terms between construction contractors and subcontractors. Automation in Construction, 146, 104676.

Sadeh, H., Mirarchi, C., Shahbodaghlou, F., & Pavan, A. (2021). BIM feasibility for small and medium-sized contractors and subcontractors. International Journal of Construction Management, 1-10.