Why Small Businesses Lose Federal Contracts — and How to Avoid Their Mistakes

It’s one thing to win a federal contract. It’s another to keep it — and deliver successfully. Between FY2019 and FY2025, dozens of small businesses lost awards or had contracts terminated, often for reasons that were entirely preventable.

A recent analysis of 100 federal contracting case studies — from GAO protests, agency terminations, and Inspector General reports — reveals the top ways small businesses stumble. If you’re chasing government contracting opportunities, these lessons are worth your time.

The number one takeaway? Most failures had nothing to do with a company’s ability to do the work — and everything to do with compliance, planning, and honesty.

What the Data Shows
Across industries and agencies, the top failure categories were:

• Non-compliance with solicitation requirements – Missing forms, ignoring formatting rules, or failing to meet eligibility by the deadline.

• Performance and delivery failures – Falling behind schedule, not meeting specs, or overpromising beyond supply capacity.

• Unrealistic or poorly built pricing – Either too low to be credible or so high it priced the business out.

• Staffing shortfalls – Key people leaving, unqualified candidates proposed, or inadequate staffing plans.

• Misrepresentation – Inflating experience, misstating certifications, or hiding adverse past performance.

• Weak contract administration – Violating subcontracting limits, neglecting reporting, or ignoring quality control issues.

Each of these mistakes has cost small firms millions in lost revenue, damaged reputations, and in some cases, exclusion from future awards.

Why It Matters for Contractors
Federal buyers are under pressure to award to small businesses — but they also need reliable, compliant partners. A single oversight like missing a women owned small business certification in SAM.gov or misunderstanding the limitations on subcontracting clause can nullify months of capture work.

For contractors holding valuable federal contracting certifications — such as SBA 8(a) certification, disabled veteran small business certification, or women business certification — the rules are especially unforgiving. You must maintain eligibility in official systems before you hit submit. Agencies don’t accept “we just applied” as an excuse.

Missteps aren’t limited to proposal prep. Performance-phase failures often start with unrealistic bids or staffing plans. An attractive low bid without the cost basis to deliver can get you eliminated under price realism reviews, even for 8a contracts services. And overpromising on staff (the “bait-and-switch” problem) is one of the fastest ways to get protested.

Practical Steps to Protect Your Awards

1. Run a compliance matrix for every bid
   Treat proposal compliance like a checklist-driven audit. Ensure your contractor NAICS code is correct, all required attachments are present, and that you meet any set-aside eligibility at the proposal deadline.

2. Price with realism and proof
   Use market data to justify labor rates, whether you’re in construction, IT, or seeking SBIR grant assistance. Be ready to defend low pricing or explain why higher pricing offers better value.

3. Lock in your key personnel
   Get signed letters of commitment. If a key person leaves mid-evaluation, notify the CO immediately and propose an equal or better substitute.

4. Know your limits — literally
   For set-aside awards, track your workshare to stay compliant with FAR 52.219-14. Violating the 50% rule for services or 15% for construction can mean default termination.

5. Keep your admin sharp
   Missed reports or invoicing errors can get you downgraded in CPARS and hurt your ability to win future government contracting opportunities.

6. Maintain integrity at all costs
   Never misstate your government contracting certification status, past performance, or staffing. Misrepresentation is one of the few mistakes that can get you disqualified, terminated, and even referred for legal action.

The Bigger Picture
Success in government procurement isn’t just about writing a winning proposal — it’s about delivering exactly what you promised, within the rules you agreed to. Federal buyers want partners they can trust to follow the government contracting certification process, keep commitments, and communicate early when things change.

Small businesses with a reputation for integrity and operational discipline often find doors open wider. Agencies are more willing to award larger and more complex work to contractors who prove they can manage compliance and performance.

If you take nothing else from the hundreds of pages of GAO decisions and agency terminations, take this: your proposal is both a sales document and a sworn statement. Every number, name, and promise must hold up to scrutiny — before award, during performance, and even years later.

Learn from the failures of others, and you won’t just win more contracts — you’ll keep them, deliver successfully, and grow your government contracting business sustainably.

If compliance missteps are your biggest concern, this piece expands on the specific documentation and eligibility traps that have cost small businesses contracts. GSA’s Procurement Power Grab: What Small Contractors Need to Know Now

If you aren't a Squared Compass partner, what are you waiting for? From getting your business set up with specific government set aside programs at both the State and Federal level, to being empowered by a Fractional Capture team to win government contracts, to receiving tailored government contract opportunities Squared Compass delivers immense value which helps propel our partners to success. Schedule a chat with our team today.