What is government contracting?
Learn how to start selling goods and services to the government as a small business. Presented by Chase for Business.
What is government contracting? It’s the act of selling goods or services to a government agency. While federal agencies offer the biggest opportunities, state and local governments also rely on contractors for a wide range of needs.
Think about it in the context of your own business. As a small business owner, you probably know the value of outside expertise. You might hire an accountant to handle your taxes or a marketing manager to run your social media accounts.
Similarly, government agencies often look to outside businesses to help them operate efficiently. Outsourcing specific functions helps these agencies meet their goals effectively and avoid hiring additional full-time employees.
What are the aspects of government contracting?
In many ways, government contracting is like any other type of business deal: you’re hired to provide a product or service needed by a customer — in this case, a government agency — within agreed terms and pricing. However, there are a few key differences between fulfilling a contract for the government versus non-government clients.
The purpose is to serve the public
Government contracting helps government agencies better fulfill their responsibilities to the general public. This mission encompasses a broad range of products and services, from buying computers for government offices to hiring a construction company to build a new bridge. In this sense, government contracting can be thought of as a form of public service.
There’s a huge scope of work available
No matter what business you’re in, there’s likely a contract that matches your expertise. The Federal government spends hundreds of billions each year on contracts with outside companies and organizations, ranging from selling light bulbs to the Federal Bureau of Investigation to providing custodial services for the National Park Service. While most contracts focus on goods and services, construction and research are also large categories.
Additional regulations require attention to detail
When spending taxpayer dollars, government agencies must follow strict rules set by the Federal Acquisition Regulation. As a government contractor, these regulations can translate to more administrative burden and documentation for your business. Be prepared to create new processes and set aside training time to make sure that you’re complying with the fine print of your contract.
Who are the key parties in federal contracting?
Government contracting may involve more roles than you’re used to dealing with. In addition to the buyer (the government) and the seller (your businesses), there are other key players involved in making sure things run smoothly. Here’s a quick guide to the people you’ll interact with, both in government and within your own team.
Government bodies
- Government agencies: Federal, state, county or city agencies are your customer or buyer. They have a need for specific goods and services that you, the contractor, are hired to meet.
- Contracting Officer: Contracting Officers work for the government and have the final authority to negotiate, sign, manage and terminate contracts. Their goal is to make sure that the government receives the best possible price and quality for whatever they’re buying, and they also help ensure compliance throughout the process.
- Contracting Officer's Representative (COR): CORs help Contracting Officers with the day-to-day administration of contracts. They’re the link between contractors and government agencies and help create a smooth and successful experience for both parties.
Businesses
- Contractor: This is the business (like yours) that agrees to provide the goods or services the government needs. Many contractors are large corporations with extensive resources, but the government is also required to consider buying from small businesses that meet federal standards for size requirements.
- Subcontractor: It’s common for the primary contractor to hire another business to help them complete parts of the contract. This is called a subcontractor. For example, a contractor that’s building a hospital might hire an electrician as a subcontractor. Working as a subcontractor is also a great way for businesses that are new to government contracting to get a feel for it.
What are the types of federal government contracts?
The federal government uses different types of contracts depending on the specific needs of the project. While there’s no “best” or “worst” type of federal contracting, it’s important to understand what you’re agreeing to and be prepared to deliver.
There are two main types of contract awards: single and multiple.
- A single award contract is given to a single vendor who must complete any tasks issued against the contract.
- A multiple award contract is given to multiple vendors who compete among themselves to complete tasks issued against the contract.
Within single and multiple award contracts, you’ll also encounter various contract arrangements that describe the payment terms for your business.
- Fixed-price contracts establish a firm price that the government will pay for goods or services, regardless of the contractor’s actual costs. This puts the risk on the contractor to manage their costs effectively.
- Cost-reimbursement contracts are more flexible and pay the contractor for allowable costs incurred in fulfilling the contract, plus a fee or profit. They’re often used when the exact cost of a project is unknown, such as a research project, and pose little risk to the contractor.
- Time and materials contracts pay the contractor based on the hours worked and materials used up to a set limit. This type of contract is often used when the full extent of the work is unknown. For example, a time and materials contract might be used for emergency repairs where the contractor bills the government for labor hours plus materials.
- Indefinite delivery contracts provide for an indefinite quantity of goods or services within stated limits over a fixed period of time. Contractors then fulfill the specific needs as they arise. These contracts give the government flexibility to adapt and require more diligent contract management on the part of the business.
The government contracting lifecycle and process
While the specifics of how to find and win government contracts can vary depending on the agency and the type of contract, these are the typical steps:
- Government agencies issue a Request for Proposals (RFP) or solicitation. This document explains the specific need to be filled.
- Interested businesses, like yours, review the RFP and submit a detailed proposal explaining their qualifications, approach and pricing.
- After reviewing all submitted bids, the government formally awards the contract to the business or businesses that offer the best value.
- The contract is carried out by both parties. The contractor performs the work as described in the contract, and the government agency administers it and ensures compliance.
- Once all work is complete, the contract is officially closed. The length of each contract varies but is typically between two to five years.
Getting started in government contracting
Government contracting represents a huge opportunity for small businesses, but it isn’t the right fit for everyone. Before diving in, take time to:
- Research: Start by learning more about which government agencies buy the types of products or services your business offers. You can also research past contract award winners and see how your business compares.
- Register: To be considered for a contract, you have to register your business in the System for Award Management, which serves as a directory for government agencies that are looking to hire. Use your profile to highlight your expertise and certifications.
- Understand the requirements: Carefully read and understand the requirements of any contract opportunities you're interested in. Many small businesses will find that they need to be ready to scale quickly to meet the demand.
- Build relationships: Networking with government agencies and other contractors can lead to valuable insights and opportunities. Industry events and small business outreach programs are a good place to start. Or try talking to a Chase business banker to learn more about the programs in your area.
- Seek expert advice: Reach out to organizations such as the Small Business Administration and Procurement Technical Assistance Centers for guidance and resources to help you navigate government contracting.
Government contracting can seem complex at first, but with some research and effort, it could potentially create significant opportunities for your small business.
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