Innolog Holdings Corp (INHC)

[rarefind]

Government Subcontracting Still Means Profits for Small Caps and Small Businesses
The big business of government contracting is not just for the big boys like Lockheed Martin Corporation, The Boeing Company, Northrop Grumman Corporation, General Dynamics Corporation and Raytheon Company as there is plenty of room for small cap stocks like Innolog Holdings Corporation.
By Peter Graham

When you think of government contractors, you probably think of Lockheed Martin Corporation (NYSE: LMT), The Boeing Company (NYSE: BA), Northrop Grumman Corporation (NYSE: NOC), General Dynamics Corporation (NYSE: GD) and Raytheon Company (NYSE: RTN) because they usually occupy the top of any list of the biggest federal government contractors, but there is still plenty of business available through subcontracting from the big players (who act as the prime contractor) for small businesses or small cap stocks like Innolog Holdings Corporation (PINK: INHC).

Under a subcontracting arrangement, the subcontractor will be working under a prime contractor and not directly for the government. And while that means there is another middleman between the subcontractor and the prime contractor, it also means that the subcontractor can gradually ease into the government contracting business (e.g. learn all the rules, regulations and other procedures for deal with the government bureaucrats) and eventually become a prime contractor employing subcontractors.

Moreover, the government encourages subcontracting to small businesses and small caps as prime contractors are usually required to generate a market for smaller subcontractors in the name of helping small businesses. For example: A major prime contractor or even a subcontractor who receives a contract worth $500,000 (or $1 million for a construction project) are required to at least have plans or goals for subcontracting some of the work out to small businesses – especially small businesses owned by minorities or groups considered disadvantaged. And if the prime contractor fails to have an acceptable subcontracting plan in place that addresses these groups, it won't be awarded the contract.

For subcontractors though, the major benefit of subcontracting is that they are actually first in line when it comes to getting paid as prime contractors won’t get paid until they have shown proof that they have paid their subcontractors. Likewise, the procedures for dealing with a prime contractor, especially if there is a problem, are much easier than for dealing with the government as you might be able to resolve a problem quickly and with just an email or phone call if you deal with a prime contractor whereas the government will have lengthy rules and procedures that you must follow.

That brings me back to small cap Innolog Holdings Corporation. Back in December, Innolog Holdings Corporation announced that its wholly owned subsidiary, Innovative Logistics Techniques, Inc. had received a subcontract award from PD Systems, Inc. to support the US Department of Army. That contract will last for up to two years and be based at the Letterkenny Army Depot out of Chambersburg, PA.

Under the contract, Innolog Holdings Corporation will provide support for labor, management, logistical and technical support services to the civilian and military workforce in the recap and reset operations on military armored vehicles along with military power generators with a specific focus in the areas of Heavy Equipment Mechanic and Electronics Technician Maintenance. Innolog Holdings Corporation also indicated that this initial contact is the first step in a long term strategic working relationship with PD Systems, Inc.

In other words, investors should think beyond large cap prime government contractors and consider taking a look at small cap government contractors like Innolog Holdings Corporation. After all, the government has plenty of money to spend and wants as much of it as possible to be spent on small businesses.