Federal Contracting 101

The federal contracting market is full of opportunity. Here are the basics your business needs to know to start selling to the federal government.

Table of Contents

• Get Your Business Started in Federal Contracting
• Types of Government Contracts
• Registering to Do Business with the Government
• Finding Government Contracts and Funding
• Capturing Federal Business
• Compliance and Ethics
• Writing Winning Proposals
• Managing and Executing Contracts
• Building Partnerships and Teaming Agreements
• Common Challenges and How to Overcome Them
• Federal Contracting Acronyms and Terminology
• Next Steps for Success

Get Your Business Started in Federal Contracting

Contracting with the U.S. federal government, the world’s biggest customer, is unlike working with any other client. The government establishes the laws and extensive web of contracting regulations known as the Federal Acquisition Regulation (FAR) and operates the courts that decide contract disputes.

While the labyrinth of regulations and bureaucracy can be daunting, the opportunity that comes out of federal contracting is unique. In fiscal year 2023 alone, the United States federal government paid contractors hundreds of billions of dollars. The government has a goal of conducting 23% of prime contracting with small businesses, and they have achieved that goal for several consecutive years. Once a company has navigated their way into the market, it can be a highly lucrative and reliable revenue stream.

Federal contracting offers stability that is often unmatched in the private sector. Unlike commercial markets, the federal government’s demand for goods and services is consistent, often increasing during times of economic downturns, national emergencies, or shifts in policy priorities. This makes it an attractive market for businesses willing to invest the time and effort to understand and comply with federal procurement processes.

Government contracting is a complex field, and building expertise in every one of its facets is highly unlikely. However, a sense of how federal government contracting works at a high level is necessary to get started in the market. This guide provides a high-level view to help you get registered and ready for federal government contracting.

The Federal Contracting Basics

Government procurement, also referred to as “acquisitions” or “public procurement,” is the procurement of goods and services on behalf of a public authority such as a government agency. Government procurement generally accounts for approximately 10 to 15 percent of gross domestic product (GDP) in developed countries, making up a substantial part of the global economy.

Nearly all federal contracting is governed by the Federal Acquisition Regulation (FAR), the principal set of rules related to government procurement in the United States. Federal contracting includes any good or service purchased by the executive, legislative, or judicial branch of the federal government (although the majority of federal spending is done by the executive branch).

The FAR encompasses a wide range of topics, including acquisition planning, contract formation, and contract administration. It establishes standards for ethical conduct, procedures for bid solicitation, and guidelines for evaluating and awarding contracts. Understanding these regulations is fundamental for navigating the contracting process.

Historically, federal opportunities have been posted on one individual government website. As of 2019, the federal government began posting most contracting opportunities to the SAM.gov website. This centralized platform provides transparency and equal access to businesses of all sizes, ensuring that even small businesses can compete effectively for government contracts

Government Procurement Rules and Regulations

Each federal agency has its own contracting officers who acquire goods and services and its own (slightly different) procurement regulations, but all must follow a set of core regulations captured in the FAR. A good example is the Department of Defense’s acquisition regulations, called the Defense Federal Acquisition Regulation Supplement, which complements the FAR to accommodate the DOD’s unique requirements.

Procurement regulations are designed to promote fair competition, ensure accountability, and achieve value for taxpayers. They also mandate compliance with specific socioeconomic goals, such as promoting opportunities for small businesses, veterans, and disadvantaged groups.

The entire federal government now uses one website, Acquisition.Gov, as its primary resource for these procurement regulations and guidance. This platform serves as a repository of contracting policies, best practices, and updates, making it an essential tool for businesses engaged in federal contracting.

Contracting Officers

All government contracts are initiated, written, and overseen by a contracting officer. Contracting officers (COs) are the only government officials with authority to spend federal money beyond the micro-purchase threshold (which, as of 2019, is $2,000 for construction, $2,500 for services, and $10,000 for most goods). A CO has written authority, known as a “warrant,” given by a cabinet-level official to enter into contracts on behalf of the government.

COs play a critical role in the procurement process. They ensure compliance with regulations, evaluate contractor performance, and mitigate risks associated with large and complex contracts. For businesses, establishing a professional relationship with COs can provide valuable insights into agency requirements and expectations.

Levels of Procurement

Government agency purchases are classified by their monetary value and the nature of the product or service being acquired:

• Micro-Purchases: Acquisitions using simplified acquisition procedures, where competition is not necessarily required. As of 2019, the thresholds are $2,000 for construction, $2,500 for services, and $10,000 for most goods.
  • Micro-purchases are often made using government purchase cards (GPCs), similar to credit cards, allowing agencies to expedite small purchases while minimizing administrative costs.
• Simplified Acquisitions: Procurements made in a simplified environment, generally capped at $250,000, without requiring a formal evaluation plan or score offers.
  • These acquisitions streamline the procurement process, reducing the time and resources needed for contract awards. They often prioritize small businesses to meet agency set-aside goals.
• Regular Purchases: Procurements that must follow competitive procurement processes, including being advertised on government websites such as SAM.gov.
  • Regular purchases involve comprehensive solicitation and evaluation processes to ensure the government receives the best value. They often require detailed proposals and adherence to strict compliance standards.

Types of Government Contracts

The federal government writes various types of contracts, each with advantages and disadvantages for both contractors and government customers. Contracts generally fall into two major categories: fixed-price and cost-reimbursement.

• Fixed-Price Contracts: Provide a firm price for the work completed or items supplied. Adjustable price levels may also be used, such as a ceiling price or target price.
  • Fixed-price contracts transfer risk to the contractor, as they must complete the project within the agreed budget. However, they offer predictability and simplicity in payment structures.
• Cost-Reimbursement Contracts: Pay contractors for all allowed expenses up to a set limit, plus additional payment for profit. These contracts carry additional obligations for cost accounting and reporting.
  • Cost-reimbursement contracts are ideal for projects with uncertain scopes or risks. They require contractors to provide detailed documentation of expenses and adhere to strict cost control measures.

Other commonly used methods include:

• Indefinite Delivery/Indefinite Quantity (IDIQ) Contracts: Offer flexibility when the exact parameters and quantity of need are unknown.
  • IDIQ contracts are used for recurring needs, allowing agencies to issue task or delivery orders as requirements arise.
• GSA Schedules: Long-term contracts that facilitate purchasing commercially available products and services through pre-negotiated terms.
  • These schedules simplify the procurement process for both agencies and contractors, promoting efficiency and transparency.

Registering to Do Business with the Government

Preparation is essential. Before being considered for a contract, you must register your business in several locations:

1. Register for an Employer Identification Number (EIN).
   • This tax identification number is required for filing taxes and conducting financial transactions with the federal government.
2. Identify the appropriate North American Industry Classification System (NAICS) codes for your business.
   • NAICS codes categorize businesses by industry, helping agencies identify suitable contractors for specific requirements.
3. Register for a Unique Entity Identifier (UEI).
   • This unique number replaces the DUNS number and is mandatory for engaging in federal contracts and grants.
4. Obtain a Commercial and Government Entity (CAGE) code. The CAGE code identifies your business in government databases and is essential for contract administration.
5. Register with certify.SBA.gov to access Small Business Administration (SBA) services.
   • This platform provides tools and resources for small businesses, including certification programs and contracting assistance.
6. Review SBA socioeconomic categories to determine eligibility.
   • Participation in programs like Women-Owned Small Business (WOSB) or HUBZone can enhance your competitiveness and open new contracting opportunities.

Finding Government Contracts and Funding

Federal agencies advertise their intent to spend money through set-aside programs and websites such as SAM.gov. Agencies may also host industry days to preview solicitations. Small businesses have distinct advantages, including programs and resources provided by the SBA to help them win contracts.

Socioeconomic Categories

These categories offer contracting advantages:

• Women-Owned Small Business: Aims to award at least 5% of federal contracting dollars to women-owned businesses.
• Service-Disabled Veteran-Owned Small Business: Aims to award at least 5% to SDVOSB firms.
• 8(a) Business Development: Targets 13% of federal contracting dollars for small disadvantaged businesses in FY 2024, increasing to 15%.
• HUBZone: Awards at least 3% to businesses in historically underutilized zones.
• All Small Mentor-Protégé Program: Provides mentorship from experienced contractors.

Capturing Federal Business

Building relationships with government agencies and potential partners is vital. Successful contractors build reputations as industry experts and foster trust with agencies long before solicitations are released.

To capture federal business, contractors should:

• Attend industry events and government-hosted networking sessions.
• Participate in agency-specific small business programs and initiatives.
• Collaborate with other contractors through teaming agreements and joint ventures.

Compliance and Ethics

Contractors must adhere to regulations such as the FAR, Procurement Integrity Act, and cybersecurity standards like DFARS and NIST SP 800-171. Pre-award audits ensure accounting systems are adequate for federal contracts.

Compliance requirements include:

• Segregation of direct, indirect, and unallowable costs.
• Establishing job cost accounting systems.
• Maintaining timekeeping systems for accurate labor tracking.

Writing Winning Proposals

A well-crafted proposal can make the difference between winning and losing a federal contract. Successful proposals:

• Address the specific requirements outlined in the solicitation.
• Clearly articulate how your business’s capabilities align with the agency’s needs.
• Provide detailed cost estimates, timelines, and deliverables.
• Highlight your past performance and relevant experience.

Managing and Executing Contracts

Winning a contract is just the beginning. Proper execution involves:

• Developing a project management plan that meets all contractual requirements.
• Maintaining clear communication with the contracting officer.
• Ensuring timely delivery of goods or services.
• Complying with reporting and audit requirements.

Effective contract management ensures that your business meets its obligations and builds a positive reputation for future opportunities.

Building Partnerships and Teaming Agreements

Collaborating with other businesses can enhance your ability to win and execute contracts. Partnerships may include:

• Teaming Agreements: Formal agreements with other contractors to bid on and perform specific contracts together.
• Subcontracting Opportunities: Working under a prime contractor to gain experience and build relationships.
• Joint Ventures: Partnering with another business to combine resources and expertise for a specific project.

Building partnerships can help small businesses expand their capabilities and access larger contracts.

Common Challenges and How to Overcome Them

Federal contracting presents unique challenges, including:

• Navigating complex regulations and compliance requirements.
• Competing against well-established businesses.
• Understanding the nuances of government procurement processes.

To overcome these challenges:

• Invest in training and education for your team.
• Leverage resources provided by the SBA and other organizations.
• Develop a robust compliance and risk management strategy.

Federal Contracting Acronyms and Terminology

Understanding federal contracting jargon is essential. Some common terms include:

• FAR: Federal Acquisition Regulation
• RFP: Request for Proposal
• SAM: System for Award Management
• IDIQ: Indefinite Delivery/Indefinite Quantity
• GSA: General Services Administration
• CO: Contracting Officer

Familiarity with these terms will enhance your ability to navigate the contracting process.

Next Steps for Success

To establish a pipeline of government sales revenue, focus on:

• Clear capabilities that set you apart.
• Building relationships with customers and partners.
• Developing a contracting strategy.
• Leveraging market rules to gain competitive advantages.

By mastering these concepts and utilizing market intelligence, your business can succeed in the federal contracting market.