The Build vs. Buy Dilemma in Federal Contracting

Federal contractors face a unique growth challenge. You can only win contracts you're qualified to pursue. And the contracts that drive the most growth often require capabilities you don't have yet.

So do you build those capabilities internally, acquire a company that has them, or partner with someone who does? The answer depends on timing, talent availability, and something most strategic plans ignore: whether anyone is actually willing to sell.

The Growth Math

I worked with a healthcare-focused federal contractor - a subsidiary of a Fortune 500 company - that had an ambitious target: double revenue in five years. The strategy wasn't complicated in theory. Win more contracts, win bigger contracts, win contracts in adjacent areas.

The execution was where things got interesting.

We started by mapping the total addressable market using FPDS data - the Federal Procurement Data System, which records every contract the US government awards. This gave us visibility into market size, competitive dynamics, existing contract vehicles, and where the growth opportunities actually were.

Then we mapped the company's current capabilities against those opportunities. The gap was clear: there were lucrative contract areas they simply couldn't pursue because they lacked the required qualifications, past performance, or technical capacity.

The question became: how do you close that gap fast enough to hit a five-year target?

Three Paths, Each With Trade-offs

Build internally. Hire talent, develop expertise, build past performance through subcontracting, and eventually bid as prime. This is the lowest-risk path, but it's slow. Building credible past performance in a new area takes two to three years minimum. For a five-year growth target, you might only get one full bid cycle from an organic build. Acquire. Buy a company that already has the capabilities, past performance, and contract vehicles you need. This is the fastest path, but it comes with integration risk, valuation uncertainty, and a critical assumption: that a suitable target exists and is willing to sell at a tenable price. Partner. Subcontract to a prime that has the qualifications, build past performance through the work, and position for future primes. This is the middle path - faster than building from scratch, less risky than acquiring, but you're dependent on your partner and you don't control the relationship.

The Model

Most growth strategies for federal contractors are built on spreadsheets with assumptions. We built something more rigorous: a dynamic stochastic model that incorporated:

This model let us simulate thousands of scenarios and understand the probability-weighted revenue outcomes for different strategic choices. It made the trade-offs concrete: if you build capability X internally, you have a 60% chance of being ready for the rebid in 2028. If you acquire, you're ready now, but the acquisition adds $30M to the plan and carries integration risk.

The Acquisition Trap

Here's what most people don't account for in a build vs. buy analysis: the "buy" option requires a willing seller.

During our work, we identified several potential acquisition targets that would have perfectly filled capability gaps. On paper, the deals made sense - the strategic fit was strong, the financial models worked, and the integration paths were clear.

But some of those companies weren't for sale. Others wanted valuations that didn't make sense given the strategic value. And in a couple of cases, the best targets were already being acquired by competitors.

This is the acquisition trap in federal contracting: the companies you most want to buy are often the ones least likely to sell, because they know exactly how valuable their past performance and contract vehicles are.

The strategic plan can't assume acquisitions will happen on your timeline. You need contingency paths - and the stochastic model helped us quantify when to push for an acquisition and when to pivot to build or partner.

The Subcontracting On-Ramp

The most underrated growth strategy in federal contracting is strategic subcontracting. It's not glamorous. The margins are lower. You don't control the customer relationship. But it solves the cold-start problem.

For capability areas where the company had no past performance, we designed a subcontracting strategy that accomplished three things:

1. Built credible past performance - after one or two contract periods as a sub, the company could point to real work in the domain 2. Developed talent - working on live contracts builds expertise faster than training programs 3. Created prime relationships - good subcontractors get invited to future teams

The key was being deliberate about which subcontracting opportunities to pursue. Not every sub role builds toward a future prime opportunity. We prioritized roles that directly mapped to the capabilities needed for target contracts two to three years out.

Prioritization Under Constraints

Federal contractors operate under real resource constraints. Capture teams are small. Subject matter experts are shared across multiple pursuits. BD budgets are finite.

We used an impact vs. feasibility framework to prioritize:

This framework forced hard conversations. Some of the largest opportunities were deprioritized because the competitive dynamics were unfavorable. Some smaller contracts were elevated because winning them built the past performance needed for bigger pursuits two years later.

Growth in federal contracting is a sequence game. You have to win the right contracts in the right order.

The Result

The company was on track to meet or exceed its five-year revenue doubling target when I concluded the engagement. The growth came from a combination of all three paths: organic capability building in areas with longer runways, strategic subcontracting to get footholds in new domains, and targeted acquisitions where the right opportunities emerged at the right prices.

No single path would have worked alone. The stochastic model made it possible to balance all three dynamically - shifting resources based on what was actually happening in the market rather than sticking rigidly to a plan that assumed perfect execution.

The Lesson

Growth strategy in federal contracting isn't just about identifying where to play. It's about building a realistic model for how you get there - one that accounts for the probabilistic nature of contract wins, the constraints on your team, and the reality that not every acquisition target is available.

The companies that grow consistently in this space aren't the ones with the best strategies on paper. They're the ones that build adaptive plans and execute with discipline.