Small businesses have achieved remarkable success in defense contracting, securing $178.6 billion in federal awards during FY23 and exceeding participation goals by 5.4%. Women-owned firms captured $30.9 billion, while service-disabled veteran-owned businesses earned $31.9 billion in contracts. Success stories like Atlantic Diving Supply demonstrate how small companies effectively navigate complex acquisition processes through strategic initiatives and mentor-protégé programs. These achievements reveal opportunities for growth in the defense marketplace.
Small Business Growth in Defense Contract Awards
While small businesses play a vital role in federal contracting, their participation in defense contracts faces both opportunities and challenges in recent years. The Department of Defense dominates federal contracting, accounting for nearly 60% of all federal contracts at $464.2 billion in FY24, creating significant opportunities for small business participation.
Recent data shows impressive achievements in small business contracting, with $178.6 billion awarded to small businesses in FY23, exceeding the federal goal of 23% by reaching 28.4%. This success continued into FY24, with $176.1 billion in awards representing 23.3% of total federal contracts, demonstrating sustained commitment to small business involvement.
Set-aside programs have proven particularly effective in supporting diverse small business participation. Women-owned small businesses secured $30.9 billion in FY23, while service-disabled veteran-owned firms received $31.9 billion. HUBZone businesses nearly tripled the statutory goal, earning $17.5 billion in contracts, showing the programs’ effectiveness in creating opportunities. Informational resources are readily available to help businesses understand eligibility requirements and application processes.
Set-aside initiatives deliver remarkable results, with diverse small businesses securing over $80 billion in federal contracts during FY23.
The Defense Department has implemented strategic initiatives to support small business success. The Mentor-Protégé program pairs experienced contractors with small businesses to build capacity, while APEX Accelerators provide regional support hubs to streamline entry into defense contracts. Leading companies like Atlantic Diving Supply have demonstrated remarkable success in securing defense contracts. Economic development organizations are increasingly helping small businesses by facilitating meetings between suppliers and defense program managers. These programs help address the complex acquisition processes that 66% of small businesses identify as a major challenge.
Subcontracting represents another significant avenue for small business participation, with 33.34% of federal contracts flowing to small business subcontractors in FY23, meeting the established goal. However, challenges persist, as defense contract awards to small businesses decreased 32% between FY14 and FY23 due to acquisition complexity and contract bundling.
Despite these challenges, success stories emerge across various contract categories, particularly in Facilities/Construction, IT, and Professional Services. Small businesses have adapted to increasing requirements for cybersecurity, business systems, and insurance, demonstrating resilience in a demanding marketplace.
The SBA’s enhanced oversight through Procurement Scorecards, with demographic disaggregation since FY20, helps track progress and identify areas for improvement. The declining number of small businesses receiving federal contracts, from over 117,000 in 2010 to 58,681 in FY22, highlights the need for continued support and streamlining of entry barriers.
However, those who successfully navigate the federal contracting landscape find substantial opportunities for growth and long-term success in defense contracting.
Frequently Asked Questions
How Long Does It Typically Take to Win Your First Defense Contract?
The typical timeline to win a first defense contract averages 18 months, though this period varies based on several factors.
Companies must complete essential prerequisites, including DUNS registration, SAM verification, and CAGE code acquisition.
Simplified acquisitions under $25,000 may proceed faster, while complex bids require longer preparation.
Success rates improve when businesses thoroughly understand RFP requirements and maintain compliance with cybersecurity and quality control standards.
What Security Clearances Are Required for Defense Contracting Companies?
Defense contracting companies typically require personnel to hold security clearances ranging from Confidential to Top Secret, depending on contract requirements.
The basic levels include Confidential, Secret, and Top Secret, with additional Special Access Programs (SAP) or Sensitive Compartmented Information (SCI) access for highly sensitive projects.
Companies must also obtain a Facility Security Clearance (FCL) at the appropriate level and maintain CAGE Code registration with the Defense Logistics Agency.
Can Foreign-Owned Small Businesses Participate in Defense Contracting Opportunities?
Foreign-owned small businesses can participate in defense contracting with proper mitigation strategies and compliance measures.
They must establish a U.S.-based subsidiary, implement FOCI mitigation plans, and meet SBA size standards. Key requirements include maintaining physical U.S. operations, contributing to the domestic economy, and using proxy agreements to transfer voting rights to U.S. citizens.
Additionally, these businesses must undergo security clearance processes and demonstrate independence from foreign control.
Which Defense Contracting Certifications Offer the Highest Return on Investment?
The Contract Administrator Certification (CAC) and DAU in-residence certifications typically provide the highest ROI for defense contractors.
These credentials directly align with DOD requirements and enable professionals to manage complex contracts, perform cost analysis, and oversee procurement processes.
Additionally, the NCMA professional credentials strengthen competitive advantage, as they demonstrate expertise in federal acquisition regulations and contract management best practices.
Are There Geographic Restrictions for Small Business Defense Contractors?
Small business defense contractors face specific geographic requirements.
Since May 2022, FAR Part 19 set-asides are discretionary outside the U.S., though contractors must maintain a physical U.S. presence and contribute to the American economy.
Construction contracts require specified U.S. work locations, and overseas set-asides must comply with foreign labor laws.
Contractors must navigate local regulations while meeting subcontracting limitations and maintaining their size standard eligibility under NAICS codes.
