The Skinny Sub-Contractor: LCATS – Where’s The Margin?
As companies venture into federal contracting, they often forge relationships with Primes or other firms who have and hold the direct relationship with the customer (US Federal Government).
In these relationships, Primes will dictate rates and their sub-contractors will accept these “thin or no margin” labor categories (LCATS). Low or no margin implies you will need volume to be a profitable and successful business. Consider the following when you are in the sub-contractor role:
1 – Ensure you have a price escalation or set multiplier built in for subsequent years;
2 – Be prepared to fill all positions and have back-up for each with a strong recruiter or vetted network;
3 – Be prepared also to fill positions that are not “yours” in circumstances where the Prime may not be able to fill a seat;
4 – Consider negotiating your sub-contract for additional LCATS in subsequent years to reduce additional competition from other Subs that may be brought on;
5 – Be sure you have an air tight agreement so that your employees are not recruited by the Prime;
6 – Develop a plan to be on offense and contract direct with the customer via a contract vehicle such as the GSA Schedule.
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