What Is Government Contracting? What Makes Government Contracts Unique?

Government contracting is the process wherein businesses provide products or services to federal, state, and local government agencies and entities.

In the United States of America, government - at all levels - is fairly large, and often the largest employer of the community we live in. This is true, because in order to serve and protect the community as a whole, we create governing organizations or entities to ensure basic and essential services are provided, and to create and enforce policies or laws for the people.

When you think of all the responsibilities and tasks a government has, it is easy to recognize why they are often large - even at a local level.

As a result of the responsibilities a government has, including the need to provide services to its citizens, we can see why a government needs to purchase a lot of products and services from businesses. This includes everything from paper and pencils, janitorial and landscaping services, to computers, phones, telecommunications services, cars, food, and more.

Federal Government Contracting

The United States federal government is the largest buyer of products and services in the world. Think of the US government as the biggest customer in the world.

In 2018, the federal government will spend a little over $4 trillion, and run a deficit around $800 billion. If broken out in terms of minutes, it would mean that the government spends approximately $7 million every minute. However, a more accurate realization is that budgets and spending will be spread out throughout the year, and high spending periods will fluctuate between agencies. One of the biggest spending periods is in the months of August and September, as government agencies that have extra funds available (through the allocation from Congress) need to spend the money or risk losing it. Any money not spent goes back to the U.S. Treasury. Note: The 2018 fiscal year ends on September 30, 2018, and the new fiscal year starts on October 1, 2018.

Another important thing to consider is that the federal government is not just one buyer. It is a collection of tens of thousands of buyers that purchase everything from nuts and bolts, and paperclips, to aircraft carriers.

With so many needs - from the simple, to the complex, to the classified - government buyers will order things in bulk or small, one-offs. Other times buyers will say they know they need certain products or services, but they do not know how much, how often, or when their next order will come. This creates a unique feature within government contracting that is not present in the private sector: different contract types or contract vehicles

Contract vehicles are ways in which a government agency or department can buy what it needs. They all have different rules. Government agencies are often looking for contract vehicles that will get them what they need, as quickly as possible. One of the most commonly known to businesses is the General Services Administration (GSA) Schedule. The GSA Schedule is a listing of products and services with pricing. Government buyers use the GSA to buy a wide variety of things, and businesses work hard to get on the GSA Schedule to make sure their products and services are available to government buyers.

However, most business owners are not aware that the GSA Schedule represents only a small percentage of what / where the federal government buys what it needs. And the GSA Schedule is not always the best place for certain types of businesses to list their offerings to government buyers. There are dozens of other types of contracts, and thousands of different government buyers.

To help business owners, we have begun the process of identifying the different types of contracts the federal government uses to procure what it needs. Click here to view the different contract types or contract vehicles the federal government uses.

Another unique distinction of Federal government buyers is that some face requirements, such as the need to purchase a specific percentage of a product or service from small businesses, or woman-owned small businesses, or another requirement. This often leads to parts of an order or contract opportunity to be set-aside for very specific types of businesses.

Small Business Set Asides - Federal Government Contracting

As noted above, the federal government is concerned with allocating a percentage of contract opportunities to small businesses, and businesses owned by Americans from traditionally disadvantaged groups or minorities.

Small business set-asides, as they are known, are important for a number of reasons:

    1) They prevent all contracts from just going to large corporations, which can create monopolies and prevent competition.
    2) Small businesses often are represented by different types of groups of Americans (minorities, veterans, etc), and provide more niche / specific types of services that large corporations do not.
    3) Small business are often more agile and responsive to meeting product and service needs, whereas large corporations tend to be more rigid.
    4) Support for small businesses helps create a broader range of employers and job opportunities for all Americans.
    5) They provide opportunities for disadvantaged socioeconomic groups.

For these reasons, and more, most government agencies and departments have specific "set asides" for different types of business classifications.

Two things to make note of:

    1) The federal government can set-aside a percentage of a contract for small businesses, and do so within a larger contract. This means that your business will need to "team" with a larger, prime contractor, in order to participate. In other words, while your customer will be the government - your business partner or target for the opportunity will be another business.

    2) The other way the federal government will set-aside opportunities for small businesses is to have an entire contract be reserved for a small business. When the government does this, it is known as a sole-source contract.

State and Local Government (Also known as State, Local, Education - SLED)

When many businesses think of government contracting, they tend to focus on federal. However, of the trillions spent every year by the federal government, all the states spend about the same in total dollars.


(CLICK IMAGE OR THIS LINK TO ENLARGE CHART)

Obviously, some states spend more than others, but there are significant opportunities for businesses to win contracts in the State, Local, Education (SLED) marketplace.

As a business owner, the first thought you may have is, "Where do I begin? The are 50 states, and thousands of local governments!"

Initially, the size and scope of where to look and how to manage a search for opportunities can seem overwhelming. After all, there are over 90,000 SLED procurement entities, which produce over 400,000 bids & RFPs every year.

The first step is to think about what your business produces or what services you provide, and start to narrow your focus to which SLED agencies may be interested.

In the Onvia chart on this page, you can see a breakdown of what types of services were in more demand in different parts of state and local government.

The second step then is to start to find which state and local governments, school boards, and hospitals have purchased what you are selling, how frequently, and if there are any new opportunities announced.

The third step is to prioritize what is publicly available now, and what may be coming up in the next few months, and prepare your outreach initiatives.

Note: All government contracting, but especially at the local level, is very relationship-driven. As noted above, there are circumstances wherein a local government may only publish an opportunity to a list of vendors it is familiar with. Each of those vendors will provide a proposal and price estimate. Hence, if you are not getting to know the local procurement officials for your county, city, or town government, you could miss contract opportunities.

Core Standards For All Government Buyers

All procurement professionals working for a federal, state, or local government, have some core objectives that they need to meet - both legally and as part of their service to their constituents.

    Competition

    In order to ensure the government buys what it needs at the best possible price, and to be fair to all businesses, it needs to solicit for a contract. This solicitation process needs to be open to competing bids, and needs to be reasonably fair and transparent.

    Though there are circumstances when a government can simply reach out to a select number of businesses for bids without a massive public search or public notification (this is true at the local level), by and large, the process of requesting proposals to the evaluation process, and then the selection, should be publicized, fairly open to all types of businesses, and follow a transparent process.

    Competitive Pricing

    Procurement professionals, just like business owners, have budgets that they must work from when they solicit for products and services. In order to stay within their budget, contract opportunities seek competitive pricing terms that will allow the government to get the products and services it needs, within the limits set in its budget.

    This creates two issues government contractors must be aware of.

    First, while government's are interested in keeping costs down, pricing for contracts is not designed to deliberately low-ball businesses. Pricing a contract opportunity too low can mean the government will force a business to take a financial loss. That can jeopardize the business, and as a result, put at risk the delivery of the products or services the government needs. Therefore, procurement professionals try to price the dollar value of contracts as reasonably as possible.

    Second, every business knows that being price competitive is important. This leads some businesses to take the risk of under-cutting their own profit margin in order to win a government contract. However, as mentioned above, this puts your business, and its ability to deliver products and services, at risk. It is important to note that price competitiveness is not the same as the lowest price on the market. Other factors go into how a procurement professional for a government evaluates a contract proposal, including past performance, financial stability, and other factors. The total scope of an evaluation of a contract proposal is to find the best deal that minimizes risk to the government buyer.

    Requirements

    Every solicitation for a product or service by a government procurement professional will include some form of requirements. These requirements will often outline every detail of what the government is looking for, how much they want to pay, how payments will be processed, when they need delivery, and how a business needs to respond to the requirement. It will include things like deadlines, special instructions, points of contact, times when questions can be asked, and other types of details.

    Contract requirements are often where businesses make their biggest mistakes - namely - they do not read them carefully.

    At the local level, for example, some contract opportunities will say that any vendor that wants to be considered for the opportunity must attend an information session at a specific date, time, and location. We have seen requirements that are very direct on this point - saying that failure to attend will mean that any proposal submitted without a representative in attendance will mean the proposal will be immediately rejected. It won't matter if you are the best company for the job, have current or past contracts with that government, or if your CEO went to college with the Mayor.

JOIN GOVERNMENT CONTRACTORS TODAY!

BASICS OF GOVERNMENT CONTRACTING

Do You Have A GovCon Question?

Have a question about the GovCon industry? Send us your question, and we will circulate it to our panel of experts. We will post an answer to your question in our weekly GovCon Q&A Roundup, as well as send you a direct response. All submissions will be kept confidential. No names or email addresses will be shared publicly. No response should be considered legal advice.


Web Hosting

SIGN-UP FOR EMAIL UPDATES

GETTING STARTED

POPULAR COURSES

Web Hosting

TOP