[rdl]

There is structural favoritism, if not nepotism, in the federal system. The byzantine bidding process, requirements, etc. mean only either very large companies or very specialized companies tend to go for direct government contracts. Plus, even in cases where they are initially assigned fairly, they become a prime contractor and can be gatekeepers on every other aspect of the system. Even if their decisions are then not made on profit motives, they're not made on "best interest of the customer", either -- it's about reducing risk (of all kinds) vs. delivering the best expected product to the customer.

[rayiner]

I used to work for a smallish company that works on DOD contracts. It's really not that bad. We did most of it in-house. I doubt it's worse appreciably worse than dealing with any big faceless organization (try contracting with Wal-Mart or Boeing).

Big organizations have transaction costs associated with them. That's kind of inevitable. But the question is whether eliminating a few billion here and there in transaction costs is worth forgoing potentially huge benefits from public/private partnerships.

[rdl]

It really depends on the type of contract. (I also did defense contracting, both bootstrapping my own and working for a larger (25-50 person) company)

I'd say overall it is beyond what an early stage startup can do (non-dod-focused), without a great partner. Selling products is a lot easier than selling ongoing services, but the profit is all in services. A lot of the difficulty was due to it being a classified contract (the work itself wasn't, but the work locations and interoperability were). It's probably feasible for a successful small business with a full time person, particularly if the business is set up to go after government from the beginning.

Big companies aren't cost-free as clients, but there's less "if you do X wrong, you could go to jail" (which essentially never happens absent willful fraud, but still). The citizenship requirements also make it really hard for tech companies.

[tptacek]

From experience: it's harder to contract for the DoD (former company) than it is to contract for Fortune 100 companies (current company). Substantially harder.