“For Eric Basu, stories of being wronged on contracting work go on and on. There was a time his San Diego-based defense company, Sentek Global, joined as a subcontractor to a larger, prime contractor that wanted Sentek on board in part, Basu suspects, because his business fulfills a state set-aside requirement for veteran-owned companies. After the prime won the bid, Basu said they stopped returning his calls.
Basu is not alone in his caution. Nearly a third of subcontractors reported having at some point been “stiffed” on a contract with a prime, according to a recent American Express survey. For the report, AmEx surveyed 740 small federal contractors. While the practice raises ethical issues, it’s not illegal: Contracting regulations don’t mandate that a prime firm must stick with any particular sub.
The report found that nearly half of active small firm contractors have successfully pursued subcontracting as a procurement strategy, and these businesses derive an average of 25 percent of their procurement business from subcontracts. But for many, being listed as a subcontractor on a winning bid sometimes results in disappointment rather than new business. The survey found that 29 percent of small firms have been victims of “baiting and switching,” in which a prime contractor wins a bid with a specific subcontractor but then either uses a different sub in the execution of the contract, or simply keeps the work for themselves.”