How Startups Can Team to Win Federal Contracts

I’m starting to think one of the biggest mistakes startups make in federal contracting happens before they ever submit a proposal.

They find an opportunity that looks almost perfect. They understand the problem. Their technology fits a meaningful part of the requirement. They may even have something genuinely different from what the government is buying today. Then they get deeper into the solicitation and see everything else the government expects.

Manufacturing capacity.

Testing facilities.

Certifications.

Specialized personnel.

Integration experience.

Past performance.

Maybe a production line they do not have yet, or an engineering capability that would take years and millions of dollars to build internally.

So they stop.

They look at the requirements and conclude that they are too early, too small, or simply not qualified enough to compete.

What I have been learning is that this may be the wrong way to look at the federal market.

The question may not always be, “Can my company do all of this?”

A better question might be:

“Can I assemble a team that can?”

And federal procurement rules were actually designed to allow exactly that.

The Government Already Has a Name for This

The Federal Acquisition Regulation calls it a contractor team arrangement.

Under FAR 9.601, a contractor team arrangement can take two basic forms. Two or more companies can establish a partnership or joint venture and pursue an opportunity together, or a prospective prime contractor can agree with one or more other companies that they will participate as subcontractors for a particular government contract or acquisition program.

That second structure is particularly interesting for startups.

Imagine a small technology company discovers a federal requirement that fits its product almost perfectly. The company has the technology and understands the architecture, but it does not have a large manufacturing facility.

That company might team with an established manufacturer.

Another startup might have the software and systems architecture but lack cybersecurity accreditation expertise. It can bring in a company that specializes in that work.

A company pursuing a space program might have the core technology but need environmental testing, radiation testing, integration support, or flight-qualified manufacturing.

Those capabilities do not necessarily have to be built from scratch before the company can pursue the opportunity.

The FAR actually explains why contractor teams can be desirable. They allow companies to complement one another’s unique capabilities and offer the government a stronger combination of performance, cost, and delivery.

That is a very different way of thinking about qualification.

Small Does Not Automatically Mean Subcontractor

This is the part I think many founders may overlook.

If you are the smaller company and you need a larger company’s capabilities, it is easy to assume the obvious structure is:

Big company = prime.
Startup = subcontractor.

Sometimes that absolutely makes sense.

But it is not the only possible arrangement.

Under FAR 9.601, the prime-subcontractor teaming model is defined around a potential prime contractor agreeing with other companies that they will serve as subcontractors. The regulation does not say the prime has to be the largest company on the team.

So depending on the solicitation, eligibility requirements, small-business rules, technical requirements, and the actual division of work, a startup or small business can potentially be the prime contractor and bring larger or more experienced organizations onto its team as subcontractors.

Think about what that changes.

Instead of asking a major manufacturer:

Can we become your subcontractor?

the conversation might sometimes be:

We found an opportunity that fits our technology. We intend to lead the solution and would like you to join our team as the manufacturing partner.

That is a completely different posture.

It does not mean the startup automatically qualifies to prime every opportunity. It certainly does not mean a company can simply place a larger contractor’s logo in a proposal and suddenly inherit all of its qualifications.

But it means company size alone does not determine who must lead the team.

You May Be Able to Use Your Partner’s Experience Too

This was one of the most surprising things I discovered.

Past performance is one of the biggest barriers for new federal contractors because the obvious problem is circular.

The government wants evidence that you can perform a government contract, but a new company cannot develop a history of performing government contracts until somebody gives it one.

Teaming can help address part of that problem.

FAR 15.305 says that when relevant to the acquisition, past-performance evaluations should take into account information concerning subcontractors that will perform major or critical aspects of the requirement, along with relevant experience from predecessor companies and key personnel.

The Small Business Administration goes even further.

SBA regulations expressly state that a prime contractor may use the experience and past performance of a subcontractor to enhance or strengthen its offer, including the experience of an incumbent contractor.

Read that again because it matters.

A startup does not necessarily have to pretend it has ten years of manufacturing history when it has been operating for eighteen months.

It can say, in substance:

Here is what we do.

Here is what our manufacturing partner does.

Here is the experience they bring.

Here is exactly what they will perform under this contract.

That is much more credible than trying to make a young company look like something it is not.

There is an important qualification, however. Exactly how an agency evaluates subcontractor experience depends on the solicitation. The solicitation establishes the evaluation factors and tells offerors what the agency intends to credit, so founders still have to read the actual procurement carefully instead of assuming every agency will evaluate teaming partners identically.

This Does Not Mean You Can Borrow Somebody Else’s Resume

There is a line here, and it is important.

Teaming allows you to present the capabilities of the team.

It does not allow you to misrepresent another company's accomplishments as your own.

If your manufacturing partner has produced thousands of aerospace components, you should not say:

“Our company has manufactured thousands of aerospace components.”

if that is not true.

You can say:

“Our proposed manufacturing partner has produced thousands of aerospace components and will be responsible for manufacturing under the proposed program.”

The difference seems small, but it is fundamental.

FAR 9.603 says the government recognizes contractor team arrangements provided that the arrangement is identified and the relationships among the participating companies are fully disclosed in the offer, or disclosed before a later-created arrangement becomes effective.

In other words, the government is not asking you to hide the fact that you need partners.

It expects you to explain the team.

That means who is doing what, why that company is part of the solution, and how the combined organization is going to perform.

The Startup Still Needs to Be a Real Prime Contractor

There is another side to this that founders need to understand.

You cannot create a company that is effectively a name on the front of somebody else’s operation and assume the government will treat you as a legitimate small-business prime.

The SBA has an ostensible subcontractor rule designed to address arrangements where the supposed subcontractor is actually performing the primary and vital requirements of the contract, or where the prime contractor is unusually reliant on that subcontractor.

This is especially important when pursuing small-business set-asides.

The regulation makes the distinction fairly clear. Using a subcontractor’s experience and past performance to strengthen your proposal is permissible. The problem arises when the subcontractor is effectively performing the prime contractor's core role or when the prime is unusually dependent on the subcontractor.

So a structure where the startup owns the architecture, manages the program, performs meaningful technical work, controls integration, manages the government relationship, and uses a specialized manufacturing subcontractor can look very different from a structure where the startup wins the contract and then hands nearly everything to another company.

Teaming is not supposed to be a shell game.

The prime still has to be the prime.

Small-Business Set-Asides Add Another Layer

This is where the details start to matter.

Certain small-business set-aside contracts have limitations on subcontracting, which restrict how much of the government payment can ultimately be passed to companies that are not considered similarly situated entities.

Under the current SBA rule, for example, covered service contracts generally prevent the small-business prime from paying more than 50 percent of the amount paid by the government to firms that are not similarly situated. Supply, general construction, and specialty-trade contracts have their own rules and calculations.

The regulations also contain an important concept called a similarly situated entity. In qualifying circumstances, work subcontracted to another business with the required small-business or socioeconomic status may be treated differently when calculating the limitation on subcontracting.

This is why the answer to “Can we team with them?” is often yes, while the next question needs to be:

“How should we structure the work?”

The type of procurement, NAICS code, set-aside status, proposed workshare, partner size, socioeconomic status, and actual performance responsibilities can all matter.

You Do Not Necessarily Need a New Company

When founders hear the word “team,” they may immediately think about forming a joint venture.

That is one possibility, but it is not always necessary.

A much simpler structure can be:

Startup as prime contractor

↓

Company A as manufacturing subcontractor

↓

Company B as testing partner

↓

Company C providing specialized engineering

The companies remain separate organizations.

A joint venture is another structure entirely. It can be useful in the right circumstances, particularly where the parties want to pursue an opportunity together as the offeror or where SBA joint-venture rules provide an appropriate path.

SBA specifically recognizes qualifying joint ventures as a mechanism through which businesses can compete together for certain government contracts, and an SBA mentor and protégé may under qualifying conditions form a joint venture that pursues small-business and certain set-aside opportunities.

But forming another entity should not be the reflex.

Sometimes what you need is simply a properly structured prime-subcontractor relationship around a defined opportunity.

Put the Relationship in Writing

If another company is going to be a meaningful part of your proposal, I would not operate on a handshake and a few emails.

The FAR recognizes the contractor team when the arrangement and relationships are disclosed to the government.

From a practical business standpoint, that means the companies should have a clear written understanding before one party starts using the other party's personnel, facilities, qualifications, technical information, past performance, or name inside a federal proposal.

A teaming agreement can establish things such as who intends to serve as prime, who intends to subcontract, what opportunity the arrangement covers, the proposed division of responsibilities, what each company will contribute, confidentiality, intellectual-property protections, proposal responsibilities, and how the parties intend to negotiate the eventual subcontract if the government makes an award.

The exact agreement will depend on the companies and the procurement.

But the principle is simple:

If another company's capabilities are part of the reason your proposal is credible, document the relationship.

The Opportunity Should Come Before the Team

There is another strategic lesson here.

Startups sometimes approach large contractors and say:

We would love to partner with you.

That is a difficult conversation because it is vague.

Partner on what?

For which customer?

Against which requirement?

Who pays?

Who leads?

What exactly does either company need from the other?

A much stronger conversation begins with an actual opportunity.

We identified this federal requirement.

This portion aligns with our technology.

These are the capabilities we are missing.

Your organization has those capabilities.

We believe the combined team can address the requirement.

Here is the role we think you could perform.

Now there is something to discuss.

The procurement itself becomes the organizing mechanism for the partnership.

This is particularly relevant in deep tech because very few young companies can economically own every layer of the stack. A startup may have extraordinary intellectual property while lacking production infrastructure. Another company may have world-class manufacturing but no reason to develop the startup's particular technology internally. A testing laboratory may have equipment that would cost millions of dollars to duplicate. An established engineering company may already employ the specialists necessary to qualify the system.

You do not necessarily need to recreate all of those capabilities.

You may need to orchestrate them.

Maybe the Moat Is the Team You Can Assemble

Startup culture spends a lot of time talking about what a company owns.

Its software.

Its patents.

Its people.

Its factory.

Its data.

Its distribution.

Federal contracting introduces another type of capability that I think founders should pay more attention to: the ability to assemble the right organizations around a defined mission.

If a federal agency has a serious operational problem, it probably does not care whether every engineer, machine, testing chamber, manufacturing line, or specialized process sits under the same corporate roof.

It cares whether the contractor can deliver.

The FAR's own policy for contractor teaming reflects this idea. Contractor teams can be desirable precisely because multiple companies can complement their unique capabilities and offer the government a better overall combination of performance, cost, and delivery.

That should change how founders look at opportunities.

The solicitation may ask for ten capabilities.

Maybe you have four.

The old reaction is:

“We cannot bid.”

The better reaction might be:

“Who has the other six?”

Then you determine whether the procurement allows the structure, whether the economics work, whether the workshare complies with the applicable rules, whether the companies genuinely complement one another, and which organization should lead.

Sometimes the answer will still be that you should walk away.

But you should walk away because the opportunity does not work, not simply because every required capability is not sitting inside your company today.

Startups May Be Disqualifying Themselves Too Early

This is probably the biggest takeaway for me.

There are plenty of legitimate reasons a startup may not qualify for a federal opportunity. Required certifications may be missing. A solicitation may impose specific experience requirements. Security requirements may be prohibitive. The company may not satisfy the applicable size or set-aside rules. The economics may not work. The team may be unable to meet the required schedule.

But “we cannot personally do every part of the contract” should not automatically be one of those reasons.

The government already has a framework for companies combining capabilities.

The government already recognizes prime-subcontractor teams.

Federal acquisition rules already contemplate relevant subcontractor past performance.

SBA regulations expressly allow a prime to strengthen an offer using subcontractor experience, while placing boundaries around arrangements where the prime becomes little more than a pass-through.

For founders trying to enter federal markets, that opens up an entirely different way of looking at opportunities.

Do not only ask whether your company qualifies.

Ask whether the team you can build qualifies.

That is a much bigger universe.

Frequently Asked Questions

Can a startup be the prime contractor on a federal contract?

Yes, provided the company satisfies the requirements of the procurement. Federal contractor teaming rules do not establish a requirement that the largest or most experienced company on a prime-subcontractor team must serve as prime. FAR 9.601 expressly recognizes a potential prime contractor arranging for one or more other companies to participate as subcontractors.

Can a small business team with a large company?

Yes. Contractor teaming arrangements can combine companies with complementary capabilities. Additional restrictions can apply when the procurement is a small-business or socioeconomic set-aside, particularly limitations on subcontracting and SBA rules concerning excessive dependence on a subcontractor.

Can a startup use a subcontractor's past performance in its proposal?

Potentially, yes. FAR 15.305 provides for consideration of relevant past performance involving subcontractors that will perform major or critical aspects of a requirement, and SBA regulations expressly state that a prime may use subcontractor experience and past performance to strengthen its offer. The specific solicitation still controls how the agency will evaluate that information.

Does teaming mean creating a joint venture?

No. FAR 9.601 recognizes both joint venture or partnership arrangements and prime-subcontractor teaming arrangements. A startup can therefore team with another company without necessarily forming a new jointly owned organization.

Do companies need a teaming agreement?

The FAR requires the contractor team arrangement and company relationships to be properly identified and disclosed to the government, but the precise documentation required can depend on the procurement. As a practical matter, companies relying on one another in a proposal should document their respective roles, responsibilities and proposal relationship clearly.

Can the startup win the contract and subcontract almost everything to the larger company?

Not necessarily. Small-business set-asides can be subject to limitations on subcontracting, and SBA's ostensible subcontractor rule can become an issue when a subcontractor performs the primary and vital requirements or the prime contractor is unusually reliant on that subcontractor.

What is a similarly situated subcontractor?

Generally, the concept refers to a subcontractor that has the required small-business status and the same relevant socioeconomic program status as the prime for the applicable procurement. Under SBA rules, qualifying work performed by similarly situated entities can receive different treatment when calculating limitations on subcontracting.

What should a startup check before building a federal contracting team?

Start with the solicitation. Determine who is eligible to bid, what past performance the agency will evaluate, whether subcontractor experience is permitted, what work the prime must perform, whether the opportunity is a set-aside, what limitations on subcontracting apply, and whether the proposed division of work could create an ostensible-subcontractor issue. The team's structure should be built around the actual procurement rather than assumed in advance.

Sources

• Federal Acquisition Regulation, FAR 9.601, Contractor Team Arrangements. Defines contractor teaming, including joint ventures and prime contractor/subcontractor arrangements.
• Federal Acquisition Regulation, FAR 9.602, General. Explains why the government recognizes contractor teams and how companies can combine complementary capabilities.
• Federal Acquisition Regulation, FAR 9.603, Policy. Establishes that the government recognizes valid contractor team arrangements when the arrangement and company relationships are properly disclosed.
• Federal Acquisition Regulation, FAR 9.604, Limitations. Explains the government's rights and the responsibilities that remain with the prime contractor when a contractor team is used.
• Federal Acquisition Regulation, FAR 15.305, Proposal Evaluation. Governs proposal evaluation, including relevant past-performance considerations.
• 13 CFR § 121.103, U.S. Small Business Administration. Covers affiliation and the ostensible subcontractor rule, including when a prime contractor may become unusually reliant on a subcontractor.
• 13 CFR § 125.6, U.S. Small Business Administration. Establishes limitations on subcontracting for covered small-business set-aside contracts and the treatment of similarly situated entities.
• 13 CFR § 125.8, U.S. Small Business Administration. Establishes requirements governing qualifying small-business joint ventures.

This article is for general informational purposes and does not constitute legal advice. Federal procurement requirements vary by solicitation and agency, and companies should review the governing solicitation, FAR provisions, agency supplements, and applicable SBA regulations before submitting an offer.