It is first important to know the difference between prime contractor and subcontractor. A prime contractor sells to the government; whereas, a subcontractor sells to who sells to the government.

Prime Contractor
Some small businesses are not aware of what they are committing to when becoming a prime contractor for the government. The government views a prime contractor as the single point of contact, and is accountable for cost and schedule and performance.

One problematic area for a small company working as a prime contractor for the government is payment. A typical company invoices the government 30 days after starting a contract and the government has up to 90 days to respond to that invoice.  The government pays a prime contractor when it sees fit so it could take at least four to five months. Most small companies do not have a cash reserve to put front so much money  and wait months for payment.

Another problematic area is the language and clauses to a contract. Many small companies are unsure of all the terms, acronyms, clauses, references and requirements in a contract. These results in a poorly negotiate contract and the uncertainty of the contract itself.

Subcontractor
In most instances it makes sense for a small business to be a subcontractor. The advantage is the business relationship with the prime contractor and the face to face time.  The prime contractor can also pay invoices within days of receipt and as a subcontractor it will be easier to have access to the information you need to complete the job.