Government Contracting – Learn How the Federal Government Buys from Small Businesses

Government Contracting – Learn How the Federal Government Buys from Small Businesses

By Caron_Beesley, Contributor
Published: December 6, 2012 Updated: August 25, 2016

SBA Government Contracting Classroom

Are you thinking of breaking into the federal government contracting marketplace in 2013? This lucrative market is worth nearly $100 billion in sales to small businesses each year, but selling to the government is quite different than selling to the commercial sector.

For example, the government applies standardized procedures to buy products and services it needs from suppliers that meet certain qualifications. But how agencies across the government actually make those purchases (or “contracts” them) can vary enormously. Purchases can sometimes be made quickly using a simple credit card; other times, sealed bids, negotiations or consolidated purchasing programs are used.

To help small business owners navigate this unfamiliar territory, SBA offers free online training – the Government Contracting Classroom – a soup-to-nuts overview of the process. “How the Government Buys” is one of three self-paced courses that can help you understand contracting methods the government uses to buy goods and services.

If you are new to this market, check out this training. In the meantime, below are some key learning points about how the government buys!

Primary Buying Methods the Government Uses

In the private sector, business customers purchase products and services in a number of ways – some use credit card purchasing authority while others issue formal requests for proposals (RFPs). It’s not too dissimilar in federal contracting; however, contracting officials who oversee the procurement process must follow the procedures outlined in the Federal Acquisition Regulation, commonly known as the FAR, to guide government purchases.

Here’s an overview of the different rules and procedures that control how the federal government makes its purchasing decisions and how these may favor small businesses:  

  • Micro-purchases with credit cards – Government purchases of individual items under $3,000 are generally considered to be micro-purchases. They don’t require competitive bids or quotes and agencies can simply pay using a Government Purchase Card or credit card, without involving a procurement officer. Seventy percent of all government purchases are for micro-purchases under $3,000; in 2010, this represented more than $19 billion.
  • Simplified acquisition procedures – Purchases under $150,000 can use simplified purchasing procedures that involve less paperwork and fewer approval levels. The good news for small business is that purchases above $3,000, but under $350,000 are also reserved or “set aside” exclusively for small businesses.
  • Sealed bids – This method is used when the government buys competitively and has very specific requirements. Agencies will issue an “Invitation for Bid” (IFB), much like an RFP in the commercial sector. Businesses will then submit sealed bids that are opened by a contracting officer in a public setting, read aloud and recorded. Contracts are awarded to the lowest bidder who is determined to be fully responsive to the needs of the government.
  • Contracting by negotiations – This is a more complex and time-consuming process. In certain cases, when the value of a government contract exceeds $150,000 and when it necessitates a highly technical product or service, the government may issue an RFP. Typically, the government will request a product or service it needs and solicit proposals from prospective contractors on how they intend to carry out that request and at what price. Proposals in response to an RFP can be subject to negotiation after they have been submitted. If the government is merely checking into the possibility of buying, it may issue a Request for Quotation (RFQ). A response to an RFQ by a prospective contractor is not considered an offer, and consequently, cannot be accepted by the government to form a binding contract.
  • Consolidated purchasing vehicles – Many agencies have common purchasing needs such as software or offices supplies. To achieve economies of scale, purchases of certain types of products or services are centralized. In  this “consolidated purchasing,” acquisition vehicles are typically used, the most common being GSA Schedules or Government Wide Acquisition Contracts, called G-WACs. These centralized buying vehicles are negotiated by the government with awards to many vendors and used by multiple agencies.

Contracting and contracts can seem like interchangeable terms in this business. But now that you know the buying methods used by the government, it’s important to understand how the government navigates pricing and what form the actual contracts or agreements take once you’ve won the business.

From fixed-price contracts to blanket purchase agreements, these contracts and agreements take multiple forms – too many to list here. Check out the “Government Contracting 101, Part 2: How the Government Buys” for a detailed overview. Then move on to “Part 3: How to sell to the Government” and for other insights and tools, go to SBA’s Learning Center for its government contracting resources.

Don’t forget: it’s very important to find out whether your business actually qualifies for government contracts as a small business concern. This new SBA Size Standards Tool can help you decide.

Useful Information

About the Author:

Caron Beesley


Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley