Strength in Numbers

Maria and George Molina knew what they had to do before they could bid on an Alameda Corridor demolition contract.

The owners of Interior Demolition Inc. in Tujunga placed an ad in a local small-business publication and got on the phone to network with small companies whose work complemented their own.

By the time they placed their bid, their team included an Industry fencing company owned by an Asian woman and a black-owned asbestos-removal firm from Fullerton. Together they landed a $147,782 contract for demolition and site clearance on the north end of the $2-billion Alameda Corridor project, a high-speed rail link between the Long Beach and Los Angeles ports and downtown rail yards.

None of them could have done it alone. Each was too small and specialized to handle the job solo. The Molinas included other women- and minority-owned small businesses on their team because the Alameda Corridor agency has set high goals for minority contracting.

Small businesses, always at a disadvantage when competing for big jobs, are increasingly being squeezed out of the game as government agencies and major companies consolidate contracts. The practice, known as contract bundling--also in full swing at major corporations--can cut back on administrative costs and headaches for the agency or company in charge. But it also freezes out the little guy.

In today’s world, the only way for a small business to get in on a big contract is to team up with other small businesses in a joint venture or become part of a subcontracting team under a much larger prime contractor. Long anathema to small businesses accustomed to going it alone, teaming is becoming essential.

“The government, the utility companies, are all trying to bundle the contracts to make them bigger,” said William Yang, an Asian Business Assn. board member and head of William Yang & Associates, a Burbank consulting engineering firm. “We don’t like it, but we can’t fight them so we have to join them.”

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Yang’s firm, for example, just teamed with a major construction company to win a Los Angeles Unified School District job. The larger firm brought Yang’s company on board to fill a niche--applying his mechanical and electrical engineering expertise to air-conditioning and high-tech work.

Federal contract bundling, begun in the late 1980s, has accelerated over the last three years as the government has moved to streamline the acquisitions process. In response, the Small Business Administration has fought to reduce the harm done to small businesses, promoting law changes expected to take effect by October that require federal agencies to evaluate bundled contracts for harm they might cause small business.

The SBA also tracks bundled contracts to determine whether the bundling is justified; if it is, the agency works to secure subcontracting roles for small business, said Judith Roussel, SBA associate administrator for government contracting.

Changes in the law would also allow teams of small companies to go after large contracts, without the team losing its designation as a small business, Roussel said.

A separate program has sought to carve out portions of bundled contracts for companies certified as disadvantaged under the agency’s 8(a) program.

“Bundling is probably the No. 1 challenge for small businesses in their ability to continue growing as prime contractors,” Roussel said. “So teaming is going to be essential if they’re going to be able to compete for larger contracts.”

Despite these efforts, the trend toward consolidated contracts continues at all levels of government as well as the private sector, which increasingly lets massive contracts to prime contractors, placing the onus on them to build so-called strategic alliances with smaller, disadvantaged firms.

In the coming weeks, the Los Angeles City Council will consider a plan that would lump city purchasing, including the departments governing the airports, harbor and water and power--into mega-contracts. If approved, the change could take effect as early as August, said Diane Castano Sallee, who heads the Minority Business Opportunity Committee for the mayor’s Office of Economic Development.

Sallee and Deputy Mayor Rocky Delgadillo are pushing a companion program called Los Angeles Opportunities for Procurement and Services, or LA-OPS, that would help secure for small businesses a share of subcontracts with the big players.

Sallee said mega-contracts won’t hurt small business as long as big companies commit to subcontracting with the small fry. Regardless, small-business advocates say, teaming will be key.

“It’s become a forced issue,” said Vivian Shimoyama, chairwoman of the Los Angeles chapter of the National Assn. of Women Business Owners. “Once those contracts are bundled, it becomes necessary that people either team up, or those opportunities are completely lost.”

Small-business owners need to network and get to know the ins and outs of one another’s businesses before contract opportunities arise, because once they do, there often is very little time for team-building before bids are due, Shimoyama said.

Ava Doner founded Engineering Associates, a Commerce computer drafting and design firm, in 1960. She has since worked on “strategic alliance” subcontracting teams for Southern California Edison and Pacific Bell. Doner was part of a team headed by a female architect to design the Hollywood Red Line station for the Metropolitan Transportation Authority. Today she is teaming with Kari Helman of Arcadia-based Helman Architects Inc. to vie for more government jobs.

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Doner and Helman met through NAWBO, where they both serve on the board. “We are just starting to look for contracts together,” said Doner, who will receive the Women’s Advocate of the Year Award from the SBA next month.

Small-business owners warn that teaming has its pitfalls. Regardless of the team’s size, one participant must manage the contract, and many small businesses lack the experience to do so, said Yang, head of the Burbank consulting engineering firm. Insurance and bonding also can be costly, particularly for companies with short track records.

Competition among team members can also pose problems, said Bob Jacobs, chairman and chief scientist of Illusion Inc., a Westlake Village high-tech company that applies virtual reality technology developed for the defense industry to the entertainment world.

“As the programs evolve, it’s generally to the benefit of some team partners and less to the benefit of others,” said Jacobs, whose company’s experiences with teaming have been generally positive. “Everyone wants to position themselves to take advantage of the follow-up work, so there are stresses and strains. It’s also hard to figure out a division of work when more than one member is equipped to take on a task.”

Team leaders also need to ensure that everyone makes money, said Maria Molina.

“If they give us a [bid] that’s really low, I say: ‘Are you sure? Go check again,’ ” Molina said. “If they fail, we’re going to fail as well. It’s up to the main contractor to make sure that the rest of the team does well.”

Molina and her husband launched Interior Demolition in 1983 with little more than hand-held wrecking tools for removing walls and carpets, she said. They have since grown to 15 full-time employees, a fleet of heavy equipment and a resume that includes contracts with the California Department of Transportation, Los Angeles County and, now, the Alameda Corridor.

“This is a very competitive market. The only way to get a job is to team up with other small companies,” Molina said. “Right now we’re very strong. We’re competing with companies that we couldn’t even think about five years ago.”

The pressures of that market, however, are simply too burdensome for some small businesses, especially those that lack capital. To them, teaming is a concept not easily carried out.

Benjamin Walker of Pasadena-based Walker Electronics said he has been locked out of big contracts by the steep cost of surety bonds--requirements by some agencies that bidders produce hefty cashier’s checks merely to submit proposals--and the consolidation of contracts.

Walker said he recently bid on an electrical contract with the Los Angeles Unified School District and was told he was the lowest bidder. Two weeks later, however, he received a letter saying the contracts for electrical, plumbing, structural repair, paving and trenching had been consolidated and he was no longer in the running.

“Only the big guys could bid on it,” he said.

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Team Work

As government and private-sector contracts are consolidated to save administrative costs, small businesses are under increasing pressure to team up to stay in the game. Here are some tips on teaming and bundling:

The Small Business Administration scrutinizes large federal contracts that may have been bundled unnecessarily. Locally, you can report bundling to the following Procurement Center representatives with the SBA’s Office of Government Contracting: David Ortiz at (818) 552-3296 and Raymond Mims at (310) 363-5528. You may also report bundled contracts electronically through the SBA’s Web site at https://www.sba.gov.

Small businesses should form teams early so relationships are in place when government agencies or corporations issue requests for proposals. Business owners should join local associations that enhance networking opportunities. Businesses also may place ads soliciting team members in local and national business publications.

Teams can be headed by a prime contractor working with subcontractors or function as joint ventures with team members managing the contract jointly. Firmly delineate the responsibilities of each team member before bidding on a job.

Don’t accept team members who underbid. If they fail to make a profit, the whole team will suffer.