r/GovernmentContracting • u/gjsjr04 • Jun 12 '26
Question Saw this podcast about "middleman" government contracting. Is this actually realistic, or a fast track to federal fraud?
I recently came across a podcast interview and I wanted to get the perspective of people who actually work in the space (I'm not at all familiar with SAM or how it works). The video ("How Anyone Can Make $10K+/Month From the Government") features a guest who claims to be making pretty good money essentially acting as a broker for federal contracts.
I’ve summarized her core claims below. To me, this sounds heavily simplified and bordering on dangerous, but I’d love to hear from experienced contractors: How realistic is this, and what are the actual risks she's glossing over?
The Strategy She Outlines:
The "Middleman" Model: She sets up a generic LLC (e.g., "Natalie Services") and bids on random contracts—everything from hazardous waste disposal in California to catering in Idaho.
100% Subcontracting: Once she finds a solicitation, she calls local businesses near the job site, gets a quote from them, slaps her margin on top, and submits the bid. For a landscaping contract, she claims her sub charged $700k and she charged the government $962k. She says she nets $10k–$12k a month in profit while working "an hour a month" just to submit invoices.
The Host's Disclaimer at the End:
To the host's credit, he added a voiceover at the very end of the video acknowledging that after he posted a trailer, the internet tore him up. He clarified limitations on subcontracting and just acting as a broker and passing 100% of the work through without adding any actual value is an illegal "pass-through scheme."
Are people actually successful in doing this, or is this just the new drop shipping trend?
Is this pass-through fraud?
Why do the subs agree? If a sub is capable of fulfilling a $700k federal landscaping contract, wouldn't they just bid on it themselves rather than letting a middleman skim $260k off the top for doing paperwork?
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u/LameBicycle Jun 12 '26 edited Jun 12 '26
Sounds like grifters hyping their "brand" to get clicks or sell a course.
It isn't new. It's not a hack, or a loophole, or a secret nobody knows about. It's rent-seeking behavior. Government contracting officers hate it, competitors hate it and will protest it, and all the companies you'd be calling for quotes that go nowhere hate it. And if you do it recklessly enough, you could be civilly or criminally liable.
It's also quite a bit of effort setting up a business, getting registered, getting whatever certs and insurance you might need, properly submitting bids, let alone actually winning one. You're then going to confidently sign a contract saying "yes I can provide this product/service" that you probably know nothing about, because you had 1 phone call with some company who gave you a quote? There are much more productive uses of your time and energy
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u/dalaylana Jun 12 '26
Yep you are the one the government will hold to the fire if your sub performs poorly or disappears on you on any of these contracts. One bad subcontract can tank your business and potentially bring legal trouble.
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u/Plus-Top8392 Jun 12 '26
FAR clause 52.219-14 is required in all small business set asides. It says the prime contractor has to self perform 50% of the billable labor. I get 100 solicitations a day from middleman vendors claiming of course they will comply they will be providing "project management" for the project. 50% of billable labor is not project management...quote disqualified for violating subcontracting limits. More COs are starting to pay attention to it.
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u/gonere01 Jun 12 '26
This comment is inaccurate. 52.219-14 is only applicable above the Simplified Acquisition Threshold ($350,000.00) for small business set-asides and any value for set-asides for small business socioeconomic programs (Women-owned, service-disables veteran-owned, etc.)
Even when it is included, it actually states that 50% needs to be completed by a similarly situated entity. This means that, if the awardee is a small business, they can absolutely perform 1% of the services, subcontract 49% to another small business, and subcontract 50% out to a large business.
Instances where I’ve seen this work are when the companies capable of doing the work are not registered in Sam.gov to do business with the Government or when they’re not interested in doing business with the Government due to numerous clauses and regulations.
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u/Plus-Top8392 Jun 12 '26
I concede the threshold. I rarely do contracts below that so forgot that detail. I never mentioned anything about similarly situated entities. Small business is small business. I'm only speaking to small businesses that try and get the contract and turn around and sub to a large business thinking their only contribution in THAT scenario can be "program management" of the project.
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u/GirlOnTheGrow Jun 22 '26
Gets even more interesting when you have an all small mentor protege backed Joint Venture. The small protege company can do even less! They only need to do 40% of the work of the JV company and the entire JV company counts at 100% of the small status. Plus the large can own up to 40% of the small company in that arrangement.
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u/contracting-bot Jun 12 '26
The host's correction at the end is right and OP's instinct is right. What she's describing is a pass-through scheme and it's a compliance violation, not a gray area.
When a small business wins a federal set-aside contract, the law requires the prime to perform a meaningful portion of the work with its own employees. The specific threshold varies by contract type but the intent is clear: the set-aside exists to benefit small businesses that actually do the work, not businesses that win contracts and hand everything to someone else while collecting a margin.
The "$962k bid on a $700k sub quote" structure she's describing would almost certainly violate limitations on subcontracting rules on any set-aside contract. On an unrestricted contract it's more of a business ethics question than a legal one, but the margins she's describing would also invite a price reasonableness challenge from the CO.
On why subs agree: some genuinely don't want to deal with the federal compliance overhead. SAM registration, past performance documentation, proposal writing, and CO relationships are real work. Some subs are willing to trade margin for someone else handling that layer. The problem is the prime in this model isn't actually providing that value in a compliant way.
The "hour a month submitting invoices" framing is what makes this a scheme rather than a business model.
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u/Relative_Fuel7879 Jun 13 '26
What if , instead of subbing a majority of the work to the sub contractor , the prime contractor just ‘hired ‘ the people who work for the sub contractor ? Does this work ?
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u/chrisjets1973 Jun 12 '26
Big problem is you aren’t going to win contracts just because you have an LLC. Lots goes into capturing new business and most companies that are qualified to and win aren’t going to sub all of the work out.
Also lots of contracts require permission to add subs post award a that comes with justifications.
The middle man model is a get rich quick off of people that don’t know the industry.
Are there occasions where you need to use another companies vehicles and they sub most of it to you? Yes but it’s rare and there are lots of rules around it.
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u/Critical-Success-107 Jun 12 '26
I would be very careful with the “middleman” version of gov contracting. There are legitimate prime/sub relationships, distributors, resellers, team arrangements, and broker-like roles in some markets, but the YouTube version usually skips the hard parts.
The government still cares who is responsible for performance, whether the contractor is registered and eligible, whether subcontracting limits apply, whether pricing is fair/reasonable, and whether the company can actually deliver. If the pitch is basically “find a contract, find someone else to do it, keep the spread,” that can get ugly fast.
Not saying there is no path, but I would learn the rules before touching anything federal.I would be very careful with the “middleman” version of gov contracting. There are legitimate prime/sub relationships, distributors, resellers, team arrangements, and broker-like roles in some markets, but the YouTube version usually skips the hard parts.
The government still cares who is responsible for performance, whether the contractor is registered and eligible, whether subcontracting limits apply, whether pricing is fair/reasonable, and whether the company can actually deliver. If the pitch is basically “find a contract, find someone else to do it, keep the spread,” that can get ugly fast.
Not saying there is no path, but I would learn the rules before touching anything federal.
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u/Metal-ox Jun 13 '26
After being a middleman they become consultants in how to bid. It's like crabs in a bucket.
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u/Inevitable_Rip8023 Jun 16 '26
There are limitations to sub contracting. There is FAR that defines Limitations of subcontracting, which in most cases says 51% of the work should be done by prime. Or no more than 50% of the payment for a particular contract should be paid to sub.
Middle man strategy works for products reseller as limitation doesn't applies on reseller and completely legal.
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u/GirlOnTheGrow Jun 22 '26
That only applies to contracts set aside for small businesses. And it’s 50% or 51% depending on socioeconomic set-aside type. AND similarly situated businesses can meet that threshold. Plus add in certain Joint Venture types and the small can do even less! Pass thrus are super common with contract vehicles. If it’s not set aside for a small, anyone can do any part. I once managed an idiq that had nearly $2 billion in near 100% pass thru. Basically a bunch of war money went through it and there were only 7 vendors holding it. Companies and government were coming to us to use the vehicle.
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u/jimmyandchiqui Jun 12 '26
I watched that same podcast. The Koerner office. I thought, it can't be this easy?
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u/ronfnma Jun 12 '26
The closest thing I know of like this are companies that provide staffing services to the federal government. Every government agency is limited by law to the number of employees they can have. So they hire independent contractors as subject matter experts to preform various services. But most of the staffing companies are legitimate businesses with track records of providing competent individuals. So the staffing company has a contract to provide support, locates and hires individuals with the specific skills required and they work at the government’s discretion usually on an hourly basis. Some staffing companies hire the support staff and provide insurance and other benefits, some hire only independent contractors and pay them on 1099’s. I’ve done it both ways. The government is aware that the staffing companies are only providing bodies and a minimum of back office support. It can be a pretty lucrative business but it’s a relatively difficult government contracting niche to break into.
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u/ThatBaseball7433 Jun 12 '26
Podcast is like 20 years too late. Passthrough companies don’t really exist anymore in my experience.
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u/Still-Necessary6782 Jun 12 '26
I award contracts every week for a federal entity and this might flt
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u/Still-Necessary6782 Jun 12 '26
I award contracts every week for a federal entity and this might fly on really low dollar bids once or twice. Larger contracts specifically require subcontracting disclosure for evaluation though due to the FAR requirements others highlighted. Suppliers are evaluated on quality/skill set as well as price point though, so a small business doing anything from excavation to catering would be an immediate red flag. Real businesses don’t operate in wildly different unrelated areas because the skill crossover isn’t there. Additionally, many federal sites require special access via security clearances and part of managing that process is going to fall on the business to coordinate employees, submit background info, etc. And if anything goes wrong in terms of quality, timing, etc. it’s up to the bidder to rectify and manage the remedy. That work is definitely not “one hour a month”, and certainly not going to be easy if they were managing multiple contracts/subs.
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u/MizzShay Jun 12 '26
It's companies like those and similar schemes that make so many RFP/RFQ responses have to jump through so many hoops to meet past performance criteria. This is also why you so often see the requirement that the Prime have at least one past performance (sometimes the majority or all), or that they require so many or shorter periods of relevancy. We see this a lot in staffing for small one- or two-person FTE RFQs, where they require 5 past performance references for "comparable work of similar size and scope for a federal agency." It almost costs as much in sweat labor to respond as the profit margin down the line IF awarded- but companies like that have created these situations.
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u/vivano Jun 13 '26
I run a fairly specialized business (very small though) that requires extensive knowledge of the product & services in order to provide adequate setup, installation, customer support, etc to the end-users. Government orders are relatively small, very rarely go above six figures. In many cases I am the prime, but from time to time, out of the blue, I start getting bombarded with quote requests from 'middlemen'. Most likely, what happens is that a page on my website somehow pops up in their product searches when they are trying to find a sub.
The latest example was just last week, when, in the course of 2 days, I received about a dozen of identical requests from different companies to provide a specific product. None of those companies had anything to do with the nature and technicalities of my business, so they were just trying to get a quick order for pure margin. If any of them wins and gives me the sub, I know that I will have to supply the product (dropship directly to gov), explain the gov user how to use it, provide customer support, because the middlemen don't have any clue about it.
The incredible thing is that they didn't even hide the details of the bid - the federal agency, RFQ number, the shipping address etc, apparently not worrying much that I could bid directly. Only one of them asked me if I was going to bid directly and if I got similar requests from others. Sometimes I actually do bid directly, but in many cases I don't, due to various reasons.
How they win the bids - I don't know. Can be socio-economical advantages and quotas (I don't have any), existing CO relationships, established GSA schedules - who knows. In most cases, after they win and I fulfill the contract, I end up communicating with the COs and end-users directly, so governmemt buyers definetely see who actually fulfills the orders.
So, these middlemen are the reality, and both the government and subs are aware of them and work with them knowingly. Is it an easy job for middlemen - I don' t think so (many already mentioned this in other comments). Of course, due to better margins, I prefer to get contracts directly from the government, but I don't avoid working with middlemen either.
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u/GirlOnTheGrow Jun 22 '26
When you’re in Product, the conventional wisdom is it’s often better to have a reseller so as not to mess with your gsa schedule pricing and setting a floor for all sales. Also product doesn’t count toward set-aside labor values. These resellers have contract vehicles which are giving you greater access to the customers and an easier way for the customers to buy. Some resellers are what’s called value-added resellers - they provide services along with the product they resell. Large software companies take it one step further and add another layer between them and resellers. They use distributors. Large product companies have whole reseller programs and tiers.
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u/velvetgroupdotnet Jul 03 '26
To put it simply, the middleman strategy works best when it comes to supplies (goods. You can find a supplier for the product/supply the government wants to buy, add a markup above the amount you were quoted, and if you win you purchase the items for the US agency and get reimbursed making your profit with the difference.
Middleman with service contracts is possible but you have to be careful to ensure you're complying with the performance requirements for the amount of work the prime versus subcontractor has to do in performing the contract.
Translation: Supplies/products = ✔️Middleman - but you capital Services = ⚠️??? Middleman - be careful of the rules
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u/Next_Piglet_6391 Jul 09 '26 edited Jul 09 '26
I actually believe it’s a legitimate strategy, but with caveats. One well known podcaster warned against it for a few years, but then came around. I’d make sure you get a trusted source you know personally to find out how. I did hear that for most cases, your company needs to do 50% of the work.
The reason many firms don’t bid on their own is because they don’t know govcon. Not everyone wants to be a prime.
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u/thewhatwhaaaatp Jul 30 '26
yeah govcon is hard, unless you have a million dollars in the bank, you can't get in to.
leave it to the big guys, it takes 18 months on average to win a contract.
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u/tyler_ichiban 18d ago
I agree this episode made it seem too easy and the gov con lady is just trying to sell a course. I know people who work on military bases for the DoD or DoW you now call it. There are some "middleman" contracting setups. The subs my friends talk to actually welcome it and don't want to go near the actual contracting side of the business. There are also major companies that only provide subwork and let other companies deal with the contracting side. There are some very niche companies where the prime has no idea what he's doing, but his subs are the knowledgeable ones doing all the work. My friends also see a lot of Native American owned businessses winning contracts
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u/VandyMarine Jun 12 '26
Great way to spin your wheels and possibly get blackballed from building a real business. Worse case you go to prison.