Knowledge Library · prime-contractor
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What is the prime-sub partnership model and why do most federal deals flow through prime contractors?
Prime-Sub Hierarchy in Federal Sales
Prime contractors are the direct government contract holders. Subcontractors supply goods/services to primes. This relationship gates $750B+ annually in federal procurement.
The Structural Reality
- Large primes dominate: Lockheed Martin, Booz Allen Hamilton, SAIC, ManTech, Northrop Grumman hold most federal contracts
- Compliance requirement: Agencies prefer working with known, audited primes rather than new vendors
- Sub margin model: Subs typically receive 60-75% of contract value; primes take 25-40% as overhead/admin
- Sub responsibility: You handle delivery, compliance, security—primes handle relationship and billing
- Win rates: 70-80% of federal software deals flow through at least one prime layer
Why Subs Exist (When Primes Don't Build)
- Primes lack specialized talent (SaaS, AI, data analytics)
- Compliance cost too high for primes to develop in-house
- Faster to partner with existing FedRAMP vendors than retool internally
- Agencies demand vendor diversity (subcontractor diversity score improves bid competitiveness)
Prime-Sub-Agency Relationship Map
flowchart LR
A[Federal Agency] -->|Contract| B[Prime Contractor]
B -->|Statement of Work| C[Sub #1]
B -->|Statement of Work| D[Sub #2]
B -->|Statement of Work| E[Sub #3]
C -->|Delivery| F[Agency Gets Service]
D -->|Delivery| F
E -->|Delivery| F
B -->|Invoices Agency| G[Payment]
G -->|Pays primes| B
B -->|Pays subs| C
B -->|Pays subs| D
B -->|Pays subs| E
Operator Playbook
- Target Tier-1 primes: Build 3-5 relationship with primes that operate in your vertical (defense, health, civilian)
- Margin agreement: Lock in 60-75% floor in MSA to prevent prime squeezing
- Compliance bundling: Offer primes turn-key FedRAMP/CMMC compliance to reduce their risk
- Subcontractor reference: Get prime executive sponsor before any agency pitch
Source: Pavilion federal partnerships, Bridge Group prime-sub research, SaaSstr federal breakout session.
TAGS: prime-contractor,subcontractor-model,federal-partnerships,margin-compression,compliance-bundling,tier-1-primes,sub-diversity
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