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What are federal contractors? Simply put, they’re businesses or individuals who strike deals with the US government to supply materials, deliver services, or complete specific tasks. Our discussion cuts through the complexity to give you a clear view of who these contractors are, the essential rules they follow, and highlight opportunities for entering this space. Additionally, federal contractors may be involved in activities such as handling or being involved with federal funds in various capacities, including serving as a depository, issuing or paying agent for U.S. savings bonds and notes, and entering into federally assisted construction contracts.

Key Takeaways

  • Federal contractors are varied entities, ranging from sole proprietors to large corporations, and must comply with a wide range of federal regulations, including labor, IT security, and environmental laws, as well as adhere to specific types of government contracts such as supply, service, and construction.
  • Federal contractors and subcontractors are required to follow strict non-discrimination and affirmative action policies as per Executive Order 11246, and if applicable, must develop and annually update written Affirmative Action Programs (AAPs) to ensure equal opportunity employment.
  • Compliance evaluations conducted by the OFCCP are crucial for federal contractors to demonstrate adherence to affirmative action and equal employment regulations, with strategies for compliance including regular internal audits, targeted recruitment efforts, and fostering diversity through partnerships with educational institutions.

Defining Federal Contractors

Illustration of a handshake between a business person and a government official

When we hear the term ‘federal contractor,’ we might think of large corporations involved in defense or infrastructure. But did you know that federal contractors can also be:

  • sole proprietors
  • small businesses
  • partnerships
  • limited liability companies (LLCs)
  • private individuals

In essence, a federal contractor or subcontractor is any individual or employer who enters into a contract with the United States to perform a specific job, supply labor and materials, or for the sale of products and services. This includes government contractors, who also work under federal contracts.

From small businesses to large corporations, federal contractors come in all shapes and sizes. Yet, they all share a common thread – the obligation to comply with a myriad of federal regulations. Some of these regulations include:

  • Labor standards set by the Fair Labor Standards Act (FLSA)
  • IT security requirements as per the Federal Information Security Modernization Act (FISMA) and the Privacy Act
  • Environmental regulations like the Clean Air Act and the Clean Water Act

The responsibilities of federal contractors extend far beyond the immediate scope of their contracts.

Types of Federal Contracts

Recognizing the different types of contracts is a vital step in navigating the complex landscape of federal contracting. For instance, supply and service contracts typically involve the purchase of supplies or logistical support by federal agencies, often provided by supply and service contractors. Construction contracts, on the other hand, are specific to construction projects and include work associated with the building or assembling structures.

A different kind of contract is the federally assisted construction contract, which is partially funded by federal agencies but executed by non-federal entities. Each type of contract comes with its specific procurement processes and requirements, including federally assisted construction contracts. Understanding these distinctions can assist federal contractors in effectively maneuvering through the procurement processes.

Contract Compliance Programs

Ensuring compliance among federal contractors and subcontractors is a significant task, and it falls on the shoulders of the Office of Federal Contract Compliance Programs (OFCCP). This organization holds the responsibility of making sure that contractors comply with non-discriminatory hiring and employment practices, as stipulated by the Equal Employment Opportunity clause included in every contract.

This clause is not just a formality. It signifies a federal contractor’s commitment to creating a diverse and inclusive workforce, which is not only a legal necessity but also a strategic advantage. Through compliance with these regulations, federal contractors can build stronger, more adaptable organizations that are capable of meeting the challenges of the twenty-first century.

Subcontractors in the Federal Sphere

Illustration of a subcontractor working with a federal contractor

The federal contracting ecosystem is not limited to primary contractors. It also encompasses subcontractors – companies that do business with the primary contractors holding direct contracts with the Federal Government. These subcontractors play a crucial role in the execution of federal contracts, performing work such as:

  • Providing specialized services
  • Supplying materials or equipment
  • Assisting with project management
  • Conducting research or analysis

Nevertheless, one should remember that a subcontractor does not maintain an employer-employee relationship with the prime contractor or subcontractor they serve. Instead, they may provide services or sell personal property that is necessary to fulfill the obligations of a federal contract.

Subcontracts Totaling Thresholds

Subcontractors are not exempt from compliance requirements. If they have 50 or more employees and a federal contract or subcontract of $50,000 or more, or are handling government bills of lading totaling at least $50,000, they are required to have a written Affirmative Action Plan (AAP).

Prime contractors, including construction contractors, are also subject to this rule. If their contracts exceed $750,000, or $1.5 million for construction, and the contracts cannot be directly awarded to small businesses, they are mandated to have a small business subcontracting plan.

Affirmative Action and Equal Employment Opportunity

Illustration of diverse group of employees working together

As federal contractors, both primary and subcontractors must abide by Executive Order 11246. This order mandates non-discrimination and affirmative action for equal employment opportunity without regard to:

  • race
  • color
  • religion
  • sex
  • sexual orientation
  • gender identity
  • national origin

This order also requires covered contractors and subcontractors to:

  • Include a specific equal opportunity clause in each of their nonexempt contracts and subcontracts
  • Avoid discrimination
  • Actively work to recruit, hire, and promote qualified individuals with disabilities and protected veterans.

Written Affirmative Action Program (AAP)

Developing and maintaining a written Affirmative Action Program (AAP) is a key compliance requirement for federal contractors. Essentially, an AAP is a systematic management tool designed to ensure equal employment opportunity. It covers policies, practices, and procedures that facilitate employment and advancement without discrimination on the basis of:

  • gender
  • race
  • disability
  • veteran status

For contractors identifying underutilization of individuals with disabilities or protected veterans, the AAP must include a description of the steps they have taken to determine where impediments to equal employment opportunity exist.

Annual Updates and Record Keeping

The maintenance of an AAP is not a task to be done once and forgotten about. Federal contractors are mandated to update their affirmative action program annually, ensuring that their documents up to date, and documenting recruitment and advancement efforts aimed at women and minorities.

But the record-keeping responsibilities don’t stop there. Federal contractors must retain various personnel or employment records for specified time periods, which are determined by their company size and contract value. To evidence affirmative action efforts, contractors should keep records of:

  • employment policies
  • communications with suppliers and vendors
  • copies of contracts with EEO clauses
  • demographic statistics of job applicants and employees.

Compliance Evaluation Process

Compliance extends beyond merely following rules to demonstrating consistent adherence to them. To this end, the OFCCP conducts compliance evaluations to inspect personnel processes of federal contractors and ensure adherence to affirmative action and equal employment regulations.

Contractors are advised to take a proactive approach in preparing for these evaluations. Consulting with in-house counsel, considering outside counsel, and determining the personnel to be advised when facing a compliance evaluation can be beneficial.

Scheduling Letter and Compliance Review

The journey of a compliance evaluation begins with the OFCCP’s scheduling letter. This letter requires contractors to provide their Affirmative Action Programs for the current year and specific support data for the prior year.

Contractors are typically required to submit the necessary information within 30 days of receiving the scheduling letter, but extensions may be granted in extraordinary circumstances. Failure to provide the required Affirmative Action Programs and itemized listing information within the specified timeframe may result in enforcement proceedings initiated by the OFCCP.

Addressing Violations

What happens if violations are identified during the compliance evaluation? If minor violations are identified, contractors may receive a letter indicating no apparent violations, affirming their adherence to regulations.

However, in cases where violations are identified, the contractor will be asked to develop a conciliation agreement to correct the deficiencies. If severe non-compliance is detected, the OFCCP may pursue a consent decree, which is a more substantial legal agreement, enforced by the courts.

Strategies for Meeting Federal Contractor Requirements

While meeting federal contractor requirements is a daunting task, it becomes achievable with the application of appropriate strategies. Federal contractors should implement the following strategies:

  • Conduct internal audits and reporting systems to track employee demographics
  • Examine anti-discrimination initiatives
  • Assess the effectiveness of affirmative action plans

By implementing these strategies, federal contractors can ensure compliance with requirements and promote diversity and inclusion in their workforce.

In addition to regular internal audits, federal contractors can also foster relationships with educational institutions such as Historically Black Colleges and Universities (HBCUs) to create internships and establish a pipeline of diverse talent.

Recruiting Job Seekers with Disabilities and Veterans

Recruitment plays a pivotal role in the obligations of federal contractors. They can partner with service providers and educational programs that specialize in supporting individuals with disabilities and veterans, creating targeted internship and career readiness programs.

Such partnerships, along with connections with university departments dedicated to assisting veterans and individuals with disabilities, can facilitate recruitment efforts and create internship opportunities.

Self-Identification of Employees

Cultivating a welcoming environment that promotes self-identification among employees with disabilities and veterans also serves as a significant strategy for federal contractors. A workplace where employees feel comfortable disclosing their disability or veteran status can further enhance diversity and inclusivity.

Navigating Small Business Opportunities

Federal contracting is not just for large corporations. The federal contracting sphere offers unique opportunities tailored specifically for small businesses. To take part in the Small Business Administration’s contracting assistance programs, businesses must meet the SBA’s size standards and may need to complete specific certification processes.

The United States government also offers small business set-asides, special government contract opportunities that restrict competition to small businesses, providing them with a better chance to secure federal contracts.

Contracting Agency Assistance

The U.S. Small Business Administration (SBA) provides programs to assist small businesses in obtaining federal contracts. These programs aim to secure a fair share of contracting dollars for small businesses, including exclusive set-asides and sole-source contracts.

Small businesses can self-certify on to find contracting opportunities and participate in federal contracting assistance programs. They can also form joint ventures to compete together for government contracts that are reserved for small businesses.

Fiscal Year Goals and Reporting

The federal government maintains a target to allocate a minimum of 23% of all federal contracting dollars to small businesses. There are specific contracting dollar award goals for various small business categories, such as:

  • 5% for women-owned
  • 12% for small disadvantaged
  • 3% for service-disabled veteran-owned
  • 3% for businesses in HUBZones.

These goals underscore the federal government’s commitment to fostering diversity and inclusivity in federal contracting. Reporting accurately on achievements in relation to these goals is critical as it can bolster a small business’s reputation and prospects within the federal contracting arena.


Navigating the world of federal contracting can seem daunting. However, with a clear understanding of the landscape, the types of contracts, the compliance requirements, and the strategies for meeting these requirements, businesses of all sizes can successfully engage in federal contracting.

Frequently Asked Questions

What is a federal contractor?

A federal contractor is an individual or employer who has a contract with the United States to provide specific services or products.

What are the types of federal contracts?

The types of federal contracts include supply and service contracts, construction contracts, and federally assisted construction contracts.

What is an Affirmative Action Program (AAP)?

An Affirmative Action Program (AAP) is a tool aimed at promoting equal employment opportunity and preventing discrimination based on gender, race, disability, or veteran status in policies and practices.

What happens during a compliance evaluation?

During a compliance evaluation, the OFCCP inspects the personnel processes of federal contractors to ensure adherence to affirmative action and equal employment regulations, ensuring their compliance with the relevant standards.

Can small businesses participate in federal contracting?

Yes, small businesses can participate in federal contracting by taking part in the Small Business Administration’s contracting assistance programs and small business set-asides. This opens up opportunities for small businesses to compete for federal contracts and grow their business.