Government Contracts Overview for Small Businesses
Welcome to government contracting! U.S. federal government contracts represent a tremendous sales and revenue opportunity for small businesses because:
- The U.S. Government is the world’s largest customer
- It buys all types of products and services in both large and small quantities
- It is required by law to provide opportunities for small businesses
The Government’s Contracting Objectives
As you might expect, the government is very particular about how it purchases products and services. The general aims of the rules and regulations governing federal contracts are to ensure that:
- Competition is fair and open—The process of requesting proposals, evaluating bids, and making awards should take place on a level playing field with full visibility. Any business that is qualified to bid should be considered.
- Products and services are competitively priced. The government seeks pricing that is commensurate with its formidable buying power.
- The government gets what it pays for—The government protects itself by carefully defining requirements, terms and conditions for all purchases. Contractors must document that they have fulfilled all requirements and met all terms in order to be paid.
- Both the government and contractors comply with the law—Different rules and regulations apply to different types of purchases. The Federal Acquisition Regulation (FAR) or Defense Acquisition Regulation Supplement (DFARS) apply to most federal agencies. Individual organizations often have their own rules as well.
Types of Government Contractors
There are two broad categories of government contractors:
- Prime contractors bid on and win contracts directly from government agencies. After award, the prime contractor company is the entity that is legally responsible for all aspects of fulfilling the contract, such as interacting with the government customer, recruiting staff, organizing and managing teams of subcontractors, and meeting all delivery requirements. Both large and small businesses can serve as prime contractors.
- Subcontractors join prime contractors’ teams, usually to provide a specific capability or product. Subcontracting is an excellent way to enter the government contracting market and to participate in larger-scale opportunities. The advantage of being a “sub,” is that you’ll be responsible only for your area of expertise, not managing the entire contract. You can gain valuable experience (called “past performance”) that will qualify you for future contracts. But note that you’ll be serving two customers: Your prime contractor will determine what percentage of the work (called “workshare”) and which assignments (called “tasks”) you will receive. You may or may not work directly with the government, at the discretion of your prime.
To serve as either a prime or a sub, you’ll need to qualify as a small business and register as government contractor. Then you can begin to seek both prime contractors and federal agencies as customers
Government Contracting Opportunities for Small Businesses
The government is particularly concerned to include small businesses as it buys goods and services for several reasons:
- To ensure that large businesses don’t “muscle out” small businesses
- To gain access to the new ideas small businesses are great at providing
- To support small businesses as engines of economic development and job creation
- To offer opportunities to disadvantaged socio-ethnic groups
To these ends, most government agencies “set aside” a percentage of their acquisitions (what they buy) for small and disadvantaged businesses. In some cases, these set-asides might consist of certain types of tasks on larger contracts. In other cases, entire contracts may be designated for small businesses. Get all the details on set-asides in the Small Business Set-Aside Opportunities section.
Learn More About Government Contracts
These general concepts percolate through all aspects of becoming and operating as a government contractor. We’ve designed this section of SBA.gov to help you see:
- Whether government contracting is right for your business
- What you need to get started as a federal contractor
- How to find government contract opportunities and customers
Beyond the introductory content in this section, the SBA offers resources for digging into the nuts and bolts of government contracting, including:
- The Government Contracting Classroom—An extensive range of training courses on different aspects of government contracts, bids, and contract jobs
- Commercial Market Representatives—Counselors located in SBA area offices who can help you identify potential prime contractor “teaming partners.”
- Procurement Center Representatives who assist small businesses in obtaining federal contracts.