When the government needs to build new bridges, clean up after a natural disaster, or develop cybersecurity they turn to private sector contractors. Annually, the U.S. government awards around five million contracts each fiscal year, creating numerous opportunities for companies of all sizes, especially for small businesses.
In this guide, we are covering the fundamentals of government contracting, from the bidding process to the federal contracting requirements. Plus, we’ll share the various certifications that can give your small business a boost in the crowded contracting marketplace.
What is government contracting?
Government contracting, sometimes called “acquisitions” or “public procurements”, is a formal process in which federal, state, and local government agencies source goods and services from businesses in the private sector. When it comes to why the government leverages contracting so heavily, there are several reasons. The biggest being that government agencies can tap into specialized skills or resources that aren’t available “in-house”. Another advantage is that many of these businesses are often highly innovative and can bring new ideas or technology to the project. Finally, contracting is far more cost-effective as the government uses a competitive bidding process ensuring they are able to secure the best value. Contracting doesn’t solely have advantages for government agencies, it’s an incredible economic driver and employs millions of contracts in the U.S. The federal government alone spends billions of dollars annually on a vast array of projects, ranging from construction to information technology (IT) to medical supplies, and more. Head here to learn what it’s like contracting for the Department of Defense.What is a government contractor?
Government contractors are businesses, small or large, that provide goods or services to various agencies through formal contracts. The first businesses that come to mind when you think of government contractors are most likely massive companies such as Boeing and Lockheed Martin. What you might not know is that at least 23% of the more than $700 billion that the U.S. government spends annually on federal contracts is specifically set aside for small businesses. The government even encourages small business participation by setting aside a portion of contracting dollars specifically for qualified small businesses. This includes businesses located in HUBZones or owned by minorities, veterans, and women which fosters diversity and ensures a level playing field.Types of government contractors:
There are two main categories of government contractors:- Prime Contractors are primarily companies with agreements directly from the government agency. Click here and learn more about their differences.
- Subcontractors are businesses hired by the prime to provide specialized goods or services. Learn more about subcontracting here.
What are government contracts?
Government contracts are highly-detailed agreements outlining the terms, and requirements for the provision of goods or services. They typically cover aspects such as deliverables, timelines, payment terms, and compliance obligations. However, securing a local, state, or federal government contract is not a straightforward process. The bidding process, like most bureaucratic processes, can be intricate. It typically involves time-consuming steps such as submitting detailed proposals with your qualifications and methods to fulfill the project requirements. Learn more about the bidding process for government contracts.Types of government contracts:
The specific terminology used in government contracts usually differs due to aspects such as project scope and budget. That being said, there are four main types of contracts in which they can be categorized:- Fixed-price contracts, the most basic of the four, use a set price that doesn’t change based on the incurred costs by the contractor.
- Cost-reimbursement contracts are used when the finalized price is determined either at the completion of the project or at a designated date along the project timeline.
- Time-and-materials contracts are most often used when the project scope estimates and costs are even more difficult or unclear than the cost-reimbursement.
- Indefinite delivery, indefinite quantity (IDIQ) contracts are where the government selects from a pool of awardees for each task, instead of one awardee for the entire contract. This type of agreement also allows the government agency to specify whether each task will be fixed-price or cost-reimbursement.
