Margarita Howard Explains How Small Defense Contractors Compete for NASA Contracts
The defense industry has consolidated dramatically since the 1990s, shrinking from 51 aerospace and defense prime contractors to just five major players: Lockheed Martin, Raytheon, General Dynamics, Northrop Grumman, and Boeing. According to the Department of Defense’s “State of Competition within the Defense Industrial Base” report, nearly 20,000 small businesses have been pushed out of the defense market in the last decade alone.
However, small businesses still have a role to play in government contracting, particularly in aerospace. NASA awarded $4.4 billion to small business firms through the third quarter of fiscal year 2024, a 20% increase over the previous year, according to GovWin IQ. The agency consistently exceeds its Small Business Administration goals, creating opportunities for smaller contractors.
Margarita Howard, CEO and president of HX5, understands this landscape intimately. Her company, which employs about 1,000 people, competes for NASA and Department of Defense contracts. The challenge in winning these contracts involves competing with much larger firms, along with building relationships, resources, and the ability to navigate procurement rules.
“Obtaining prime government contracts is often a complex and time-consuming process,” Howard says.
Competing for Contracts
NASA’s Small Business Innovation Research program selected 299 Phase I proposals in 2024, investing $44.85 million total. About 34% of companies selected were first-time NASA SBIR/STTR recipients.
The program operates in phases. Phase I contracts last six months. Successful teams can advance to Phase II, receiving up to $850,000 over 24 months. Only then do companies become eligible for Phase III—actual commercialization requiring private sector or non-SBIR federal funding.
This structure helps small businesses gain credentials. But it also reveals the gap between “small business participation” and “competitive prime contracting.” Small firms can remain stuck in the innovation pipeline or subcontracting roles.
Building Credibility From Zero
Howard faced this challenge when starting HX5.
“In the beginning, as a small startup company, we had limited past performance history in government contracting, and that can present a real struggle for companies trying to win their first contract,” she says. “Many government procurements will often prioritize contractors with proven track records of previous performance.”
This presents a catch-22 for new contractors: You need past performance to win contracts, but you need contracts to build past performance.
HX5 pursued subcontracting opportunities first.
“When pursuing work as a subcontractor, you tend to focus on specific specialization areas, you network regularly with multiple prime contractors, and try to demonstrate the value you bring as a partner to the prime’s team,” Howard says.
This approach built HX5’s portfolio while generating revenue. The company emphasized specialized skills and competitive pricing. Success as a subcontractor created references that helped when bidding as a prime.
“The motivation for focusing with NASA was generated through our past performance work,” Howard says. “We were attractive to a large business, and they approached us about teaming with them on a NASA contract.”
That initial partnership opened doors. “Once we started our first NASA contract, it just built on more NASA work,” Howard continues.
The Proposal Challenge
A winning proposal requires more than technical capability. Federal procurement rules span thousands of pages. The Federal Acquisition Regulation and Defense Federal Acquisition Regulation Supplement contain what can seem like conflicting requirements. Full compliance proves daunting even for experienced contractors.
Some small businesses may lack in-house expertise to navigate these rules, unable to afford the specialized proposal teams, cost analysts, and compliance officers that large primes maintain.
Howard recognized this limitation early. “Developing winning proposals that accurately show the company’s capabilities, solution approach, and value proposition in a compelling and compliant manner requires solid technical and cost expertise combined with effective proposal writing skills,” she says.
“Small startup companies oftentimes will not have that skill set or ability. We invested heavily early on in a professional proposal team that consisted of very experienced proposal managers and writers who had years of experience in working with subject matter experts, developing comprehensive and persuasive proposals.”
That investment paid off. HX5 secured four contracts in one year after entering the Small Business Administration’s 8(a) program—a nine-year development program for socially and economically disadvantaged business owners.
Prime Contracting and Subcontracting
HX5 now operates as both prime contractor and subcontractor depending on the opportunity. This dual strategy provides flexibility and revenue stability.
“We have won some, for our size company, very large prime contracts,” Howard says. “And we have large businesses as our subcontractors.”
The roles demand different capabilities. Prime contractors bear full responsibility for project execution, client satisfaction, and contract management. They must form teaming arrangements, manage relationships, and handle comprehensive proposal development.
Subcontractors focus on specialized work within someone else’s program. There is less overhead, less risk, but also less control.
“When pursuing work as a prime contractor, the company has to invest in comprehensive proposal development, form teaming arrangements, which can sometimes be very complicated, manage client relationships, and prioritize the various competitive risks that may affect any of a number of potential outcomes,” Howard explains.
The dual approach requires different organizational capabilities and relationships. But it provides multiple paths to revenue and helps build the diverse past performance needed for future opportunities.
Relationships Matter
In addition to technical competence, relationships with procurement officers, program managers, and potential teaming partners are crucial.
“Building strong relationships with government agencies is an invaluable asset for successful government contractors as it can serve to provide the contractor with positive performance appraisals and sometimes even lead to new or additional business,” Howard says.
She and her team regularly attend industry events and government-sponsored outreach programs. These gatherings provide intelligence about upcoming opportunities and create connections with decision-makers.
NASA encourages this engagement through its acquisition forecast system, which provides quarterly updates on expected contract opportunities to increase advance knowledge and enhance competition.
The Reality Check
Even successful small contractors face limits. Howard acknowledges that HX5’s work demands highly specialized personnel.
“Our field is R&D and in specialty areas, primarily STEM science, technology, engineering, and math,” she says. “So across DOD and NASA, those are the specialties that are our primary workforce. Our employees often have to have advanced education.”
The company prefers experienced hires familiar with NASA or DoD operations. Finding such candidates proves difficult even before considering security clearances, which can take months to obtain.
Small contractors also face cash flow challenges during extended procurement periods.
“The government procurement processes are often lengthy and can certainly change, which can lead to delays in contract awards and payments,” Howard notes. “We learned this very early on and had to quickly develop realistic timelines and budget projections and establish contingency plans to manage cash flow.”
Competition remains fierce. Success requires differentiation through unique capabilities, successful past performance, and clear value propositions.
Small defense contractors compete for NASA contracts through strategic subcontracting, specialized expertise, relationship building, and professional proposal capabilities. Companies like HX5 succeed by recognizing their limitations, investing in critical capabilities early, and pursuing opportunities that match their strengths.
