How small construction firms can capitalize on government contracts
By Jenny LescohierOctober 25, 2021
The new infrastructure bill, and elements of the proposed $3.5-trillion budget, will provide significant funding to benefit the construction industry if passed.
Key funding initiatives include $110 billion for roads and bridges, $73 billion for power generation and grid enhancement, $66 billion for passenger and freight rail, $65 billion for broadband infrastructure, $55 billion for water infrastructure, $46 billion for resiliency efforts including cybersecurity and natural disaster remediation, $39.2 billion for public transit, $25 billion for airports, $17.3 billion for ports and waterways and $11 billion for highway and pedestrian safety programs.
In addition, the proposed budget offers $198 billion to fund clean electricity, consumer rebates to weatherize and electrify homes, financing for domestic manufacturing of clean energy, procurement of energy efficient building materials and the rehabilitation of federal buildings, among other items. Another $67 billion is allocated to fund investments in clean energy technology, energy efficient buildings, green materials and clean vehicles.
This represents an important catalyst for growth for American business and especially for the domestic construction industry. Nearly the entire Infrastructure bill is dedicated to projects that will require engineering and construction. It is likely that of tens of thousands of contractors will receive business from these investments and many domestic manufacturers and transportation and logistics companies will also benefit from the billions of dollars in materials that will need to be procured in order to complete these projects.
We talked with Benjamin Johnston, chief operating officer at Kapitus to get his perspective on what’s needed to make the most of potential opportunities. Following is an excerpt from that discussion.
CONEXPO-CON/AGG 365: How might small- to medium-size commercial contractors capitalize on some of the proposed social investments?
Benjamin Johnston, chief operating officer, Kapitus: Small businesses can find real opportunity in many of the modernization and growth initiatives proposed, but money will not be allocated equally. Small businesses should consider how best to position themselves for a world in which green technologies are increasingly available, and in many cases, required. Contractors should also consider how to position themselves to compete for government contracts.
CONEXPO-CON/AGG 365: How can they effectively position themselves to take on more government contracts?
Johnston: To compete directly for government contracts, small businesses must become certified government contractors. Contractors can register through the federal government’s System for Award Management (“SAM”) at USFCR.com and should have a DUNS number and NAICS code available when applying.
Once registration has been approved, the contractor can bid on and secure government jobs. Many smaller contractors serve as subcontractors on government projects. Subcontractors that do not wish to bid on government projects directly do not need to be registered through SAM as they are working on behalf of the “prime” contractor.
Subcontractors interested working on government projects without bidding on the project itself should partner with prime contractors that have strong track records of the success working with the government. These prime contractors are likely to provide a stream of future business as government spending on construction increases in the coming years.
CONEXPO-CON/AGG 365: What are the biggest obstacles to smaller contractors gaining more business if the Biden plan is passed, and how can they best overcome those obstacles?
Johnston: The biggest obstacles for small business are likely to be their size and ability to scale in the face of increasing government demand. Government contracts are awarded after taking into consideration both the cost of the bid as well as the ability of the bidder to deliver on the full scope of the project.
Smaller, less experienced contractors might struggle to add the skilled labor and equipment required to handle certain jobs. Smaller contractors may initially decide to act as a subcontractor, while continuing to grow. Once a certain scale has been reached and the contractor has experience working on larger contracts, that contractor may then decide to become a prime contractor and bid on government jobs directly.
CONEXPO-CON/AGG 365: How do you see the outlook for construction businesses in the near and long term?
Johnston: Generally speaking, more government spending means more money in the economy, and more opportunities for small businesses to benefit. A stated goal of both the proposed infrastructure bill as well as the budget is to make investments in the nation’s core infrastructure while promoting the transition away from fossil fuels and toward green energy solutions. As a result, contractors with expertise in managing major infrastructure projects as well as implementing green technology solutions will see the largest impact.
We at Kapitus are very bullish on the small business economy in 2022 and are especially bullish on the construction sector. During the pandemic, Americans spent considerably more time at home and invested heavily in new properties and home improvements. We expect this trend to continue in 2022.
At Kapitus, construction is our largest and fastest growing industry sector. Over the past 15 years Kapitus has provided nearly $500 million in financing to approximately 8,000 contractors. Given the activity we are seeing the space today, we expect construction to be our largest sector again in 2022.
CONEXPO-CON/AGG 365: What are some pitfalls business owners should try to avoid?
Johnston: If the proposed infrastructure bill and budget pass in their current form, there will be a tremendous number of large construction projects available for bid in the coming years. Contractors will want to avoid the temptation of being over-ambitions as they pursue these projects.
Understand the labor market and what it is going to take to procure the people and materials required to complete these projects. Also consider the capital that will be required to staff up, purchase equipment and source materials. Before bidding, talk to your bank or small business lender to understand the capital available to you and how best to finance your growth.