Government Contracting and Small Business1
As a small business owner, it is difficult to learn about different programs the government has to offer. Government contracting is a way that small businesses can increase their knowledge and capabilities, as well as sales. Government contracting is a detailed subject, but it can be broken into separate topics to make it easier to understand. The following topics are broken down and discussed in further detail: how the government buys, selling to the government, classifying your business, special programs, registering your company, finding available contracts, bidding on contracts, responsibilities of a small business, and recommendations and advice.
How the Government Buys
While commercial contracts vary greatly between buyer and contractor, the government has a transparent procurement process. One of the most important things to know regarding government contracting is the Federal Acquisition Regulation (FAR), that consisting of rules, regulations, and procedures government agencies must follow when acquiring goods and services. The FAR can be found in Title 48 of the United States Code of Federal Regulations. It can be found online at http://acquisition.gov/far/loadmainre.html. The code consists of 53 extremely detailed parts that include every aspect of government contracting which include need recognition and acquisition planning, contract formation, and contract administration. The guiding principles of the FAR is to have an acquisition system that satisfies customer’s needs in terms of cost, quality, and timeliness; minimize administrative operating costs; conduct business with integrity, fairness, and openness; and fulfill other public policy objectives as stated in FAR 1.102(b).2
There are several different methods contracting officials can use to purchase a product or service. These methods include sealed bidding, contract negotiation, consolidated purchasing programs, simplified purchases, micro-purchases, and subcontracting. The last three methods will be discussed later. When government officials are looking for a company to contract a job, they use the Central Contractor Registration (CCR). It is essential for a small business to be registered with the CCR to ensure contract opportunities.
One method used by the government is sealed bidding. This method requests competitive bids from businesses and is followed by a public opening of bids. The contract will be awarded to the bidder whose bid is most beneficial to the government. Contrary to popular belief, this method does not always award the lowest price bid. Other factors are included along with price to determine the best deal for the government. This process begins with an Invitation For Bid (IFB). An IFB will include a description of the product or service to be acquired, instructions for preparing a bid, the conditions of purchase, packaging, delivery, shipping and payment, contract clauses to be included, and the deadline for submitting bids.1 Sealed bidding is similar to bidding on the game show, The Price is Right, but the individual bids are kept private until a public opening of bids. After the submission deadline has passed, each sealed bid is opened and read to the public at the purchasing office. The contract is awarded to the low bidder who will best fit the government’s needs.
The next type of contracting method is contract negotiation. There are two approaches in which the government may go about this method. This first approach is when the value of a contract exceeds $100,000 or when the product or service being acquired is highly technical. A Request for Proposal (RFP) can be issued to potential contactors on their ability to fulfill the contract need, and at what price. Once the proposal has been submitted, they may be subject to negotiation. The second approach is done when the government is only interested in the possibility of obtaining a product or service. The government can issue a Request for Quotation (RFQ). Any response from a contractor is not considered an offer and cannot be turned into a binding contract. This method is simply for the government to determine the possible cost for a product or service.
An important change to be aware of is the government’s increased importance of “best value” in contracts. In the past, contracts were awarded to the lowest bidder. However, the lowest bidder may not produce the “best value” for a product or service. If a government agency is going to award a contract based on this, it must be clearly stated in the solicitation document and include a description of the evaluation criteria, award factors, and factors other than price that will be considered in making the award.1
The final method used by government officials to obtain contracts is consolidated purchasing programs. By consolidating multiple purchases into one contract, the government can realize economies of scale. This is done through acquisition vehicles, such as multi-agency contracts and government-wide acquisition contracts.1 The purpose of these programs is to maintain long-term agreements with fewer businesses. This will enable the government to extend current contracts without having to start a new bid.
All of these methods allow the government agencies to identify potential contracts that will benefit the government as well as the small businesses chosen for the contracts. It is essential to know the different ways a government buys contracts from businesses in order to successfully obtain a bid and expand your small business.
Selling to the Government
As the world’s largest buyer of products and services, the Federal Government spends billions of dollars on purchases every single year. There have been several different goals set for the government to make sure that small businesses are allotted their fair share of business. These goals include: 1
- 23% of prime contracts for small businesses
- 5% of prime and subcontracts for women-owned small businesses
- 3% of prime contracts for HUBZone small businesses
- 3% of prime and subcontracts for service-disabled veteran-owned small businesses
Although these goals are not always achieved, it is a great point for the government to try to reach, and it ensures that small businesses are being considered for contracts.
When thinking about whether or not you are a good candidate for government contracting, there are several different questions you can ask yourself. The first is are you prepared to follow all the rules related to government regulations. Second, are you willing to do research not only to find opportunities but to also prepare offers to present for a bid. Is your business financially sound enough to support the cost of procuring one of these government contracts? Lastly, in many instances your business will be a subcontractor to a prime contractor, and you have to be sure that this will work for you.
There are several different ways to market your business to the Federal Government, but in most instances many of the same strategies you already use for marketing can be applied. First, though, you must list your business in the government’s CCR. After doing this, there are several tips to follow when deciding how to market your business. First, you need to be knowledgeable about where your product or service can be used, and how it is unique enough to be considered for a contract over similar businesses. A business must also make itself known to potential purchasers and users of their product, and you can do this initially by making personal contact with personnel. When talking to these agents, be sure to focus on what makes your product or service the best, and avoid pushing the agency’s ability to use your company to meet their own goals.
The chance of a small business being awarded a government contract may seem very slim when considering there are a lot of big businesses out there competing for the exact same contract. The good news for small business owners is that the SBA is an advocate on their behalf. Its focus is to help small businesses get started and then grow, and therefore, will do whatever is in its power to help procure Federal contracts. The SBA also monitors the Federal Government to make certain the goals that have been set for awarding contracts to small businesses are being met.
Classifying Your Business
In order to take the first step to becoming a government contractor, you must first submit a proposal. To ensure that your proposal is as accurate as possible, it is vital that you understand how to represent your business. One of the main requirements you must meet in order to be considered a candidate for government contracting is a size standard.
Size standards are set in place by the SBA in order to ensure that your business is indeed considered a small business. The number of employees in a business usually determines size standards; however, it can also be determined by the average annual sales receipts based on the past three years. It is important to remember that you must include all affiliates’ employees and receipts when meeting size standards. Every industry in the United States economy is given a North American Industry Classification System (NAICS) code. In order to locate the NAICS code(s) that best matches your business, go to the Bureau of the Census website at http://www.census.gov. In order to determine if your business meets the necessary size standards, go to SBA’s website at http://www.sba.gov. Satisfying the size standard and knowing the NAICS code, your business is now capable of applying for government contracts.
When your business begins to bid on contracts, there are a few things to keep in mind to ensure that you are eligible for the specific contracts. If it is a federal government contract, the contractor will provide a specific small business size standard, which you may not exceed. Whether or not the contract you are applying for is your primary industry does not matter for federal government contracts; however, for many other small business programs, the size standard must be met within your primary industry.
One last thing to keep in mind is that government agencies are required to meet many specific requirements when it comes to assisting small business. The major categories of businesses that they must address and meet the needs of are the following: women-owned businesses, which are businesses that are owned and controlled 51% or more by a woman or women; veteran-owned businesses, which are businesses that are owned 51% or more by a veteran or veterans; service-disabled businesses, which are businesses that are owned 51% or more by one or more service-disabled veterans. The last category is HUBZone businesses, or Historically Underutilized Business Zone businesses. These programs are designed to help the economy in distressed areas by offering them more federal contracting opportunities. If your business meets any of the above four requirements, it is a good idea to look into government contracting opportunities because you have a greater chance of winning the bid over businesses not meeting the above standards.
In addition to the four groups mentioned above, there are two other special programs designed to help specific businesses gain government contracts. First is the Business Development Program, which offers assistance to socially and economically disadvantaged firms and helps them to win bids over larger firms for contracts and subcontracts. It is a nine-year program that involves extensive training, counseling, and mentoring opportunities. There are many requirements one must meet in order to be eligible for the program. These include: being disadvantaged because of race, ethnicity, gender, physical handicap, or residence in an environment isolated from the mainstream of American society; have a net worth of less than $250,000, excluding the value of the business and personal residence; and be in business for at least two years (can be waived).
The second special program combines two programs, The Small Business Innovation Research (SBIR) and The Small Business Technology Transfer (STTR), both managed by the Office of Technology. Eleven federal departments participate in the SBIR program by providing incentives and helping businesses to compete for federal research and development awards. Five departments participate in the STTR program by reserving federal research and development funds for joint ventures between small businesses and nonprofit research institutions.
Register Your Company
In order to be awarded a government contract, a company must first register its business using the CCR. This is a database that allows the government to learn about potential buyers, and agencies can find a company based on their size, location, experience, etc. In order to actually register your business in the CCR, you are required to have several different things. These include:1
- NAICS Code
- SBA size standard
- Data Universal Numbering System
- Federal Tax Identification Number
- Standard Industrial Classification Code
- Product Services Code
- Federal Supply Classification Codes
Find Available Contracts
There are two basic ways to obtain government contracts. First, any sole proprietors, corporations, partnerships and governmental organizations can file with the CCR to be considered by the government for contracting opportunities. The filing process is as easy as going to http://www.ccr.gov/Default.aspx and filling out the online form. Once you fill out the application, agencies can then search for your company based on any number of factors you specified, including abilities, size, location, experience, and ownership. It is also very important to frequently monitor your account and keep your business profile up-to-date.
Federal Business Opportunities3
As mentioned above, http://www.fbo.gov (FedBizOps), is a comprehensive listing of all government procurement opportunities expected to exceed $25,000. It is a one-stop virtual marketplace for companies and agencies interested in contract work. A lot of federal agencies use this resource to communicate their contract requirements to potential suppliers.
The Federal government has a procedure called simplified purchases that allows small businesses to have a priority on jobs that fall between $3,000 and $100,000. Federal rules will require these contracts be reserved for small businesses unless the contracting official cannot obtain offers from two or more small firms that are competitive on price, quality, and delivery. FedBizOpps will have requirements for all contracts over $25,000 where as contracts between $10,000 and $25,000 can be found on display in a public place like the Federal agencies “Bid Board” or by the agency’s website.
Purchases of jobs under $3,000 are considered “micro-purchases.” These purchases do not require competitive bids or quotes, and agency employees other than contracting officers can make them. These types of purchases are paid using a government credit card, so your business must be able to process credit card purchases. These are not reserved for small businesses.
Federal Supply Schedules
This program meets the common purchasing needs of Federal agencies. This is done through the General Service Administration (GSA), which establishes long-term, government-wide contracts with commercial firms to provide access to millions of commercial suppliers and services from copier paper, to computers, to accounting. Contracting officers make sure the prices are fair and reasonable by comparing the prices or discounts that the company offers to the government with those offered to commercial customers. The objective of negotiation is usually known as “most favored customer” pricing.
This is another excellent way for small businesses to get involved in the contracting process. Large businesses with contracts exceeding $500,000 (construction exceeding $1 million) must provide subcontracting opportunities for all categories of small business. Most subcontracting opportunities can be found on SUB-Net which is a subsidiary database of the SBA where prime contractors post subcontracting jobs.
Bid on Contracts
Before you begin preparing to make an offer for a government contract, it is very important to make sure that your business is meeting the exact needs that the government sets forth. After you have decided that all needs are met, it is time to decide the amount of the offer. It is very important that you include every single cost that will be incurred, including material, labor, overhead, packaging and transportation. There are actually training sessions offered by the Federal Supply Service on how to prepare a quality offer. If your offer has been declined you can ask for a debriefing to discuss the reasons it was not accepted in order to hopefully improve your chances in the future.
The government may not accept an offer by a small business even it if is the lowest bidder. An officer may reject a bid if it determines that the small business lacks certain elements of responsibility. These elements include competency, capability, capacity, credit, integrity, perseverance, and tenacity. If the officer declines the bid because of any of the elements of responsibility it is referred to the SBA who allows the small business to apply for a Certificate of Competency (COC). The small business must submit another application to them, which is then reviewed by the SBA and they can then grant it the COC. This COC is binding on the contract offer, but is only valid for that specific contract for which it was issued.
When an offer is given to another contractor that one small business perceives to be inappropriate, they are allowed to protest the award to the contracting officer. This protest must be extremely specific and timely, and can first be filed verbally followed by a written protest. The protest must be made before the contract is awarded due to the fact that the government will rarely terminate a contract with a company. The small business also is allowed to make a protest to the General Accounting Office. They also have very strict guidelines and if not followed exactly it will be dismissed immediately.
Responsibilities of a Small Business
After receiving a government contract there is still a lot of work to do. Initially, you must make sure you read the entire contract carefully. Once you understand the terms of the contract there a couple of things that are important to identify. The office administering the contract is important to identify. This is crucial in case you have any questions about the contract. While a government contract is very similar to a commercial contract, some key differences are the unique contract provisions that the government has. The SBA’s Office of Government Contracting can help you better understand the provisions.
The government can terminate your contract if you do not keep up with their given time-table or if you fail to perform any of the provisions of the contract. If the contract is terminated, you are only entitled to payment of the contract’s price for items accepted by the government. In items you failed to deliver, the government has the right to seek them elsewhere and then charge the excess costs to you if it costs the government more to get the product or service from another source, which can be costly to you and your business. The government may also terminate your contract for its convenience. The government will give you written notice and you must prepare a termination settlement claim.
Government contracts contain a certain clause that allow for contract changes as long as they are within a general scope of the contract. When it comes to payment, your contract will specify the office responsible for payments. Accurate invoices are necessary to receive payments on time. Once an award is made to your company you are contractually bound to carry out the product or service described in the specifications, so it is important never to bid on a contract unless you have read and understood all the specifications. The government will not accept a product unless it passes its inspections, which depend on the product or service being produced.
Recommendations and Advice
The government makes its contracts through agents called contracting officers. Only these officers have the authority to bind the government into a contract, but these officers have limits on their authority. It is important to find out the full authority of the person that you are dealing with. When disputes occur between you and the contracting officer, there is an appeal process that must be made to the Board of Contracts Appeal, which must be done within a specified time frame or the decision is finalized.
It is essential to satisfy the terms of the contract by adhering to the specifications of the product or service you are providing. To do other than the contract states, even if bigger or better, would not be accepted by the government. If your contract requires production, make sure to create a production control schedule to guarantee that you will have the right materials available at the right time in order to meet delivery requirements. If for any reason it seems like you might not meet the delivery time, you should notify the administration office immediately. Failure to deliver on time gives the government the right to terminate your contract.
One tip to make dealing with the government an easier experience is to be a knowledgeable e-commerce user. When dealing with the Department of Defense you will need to invoice and receive payments electronically, so it would be in the best interest of a small business doing contracts with the government to have a good knowledge about electronic commerce.
With this information, a small business owner should have the knowledge to seek out and obtain government contracts if desired. Government contracts can be very beneficial to small business in need of work that the government can provide.
1 Small Business Association. Contracting Opportunities.. 26 Mar. 2009 <http://sba.gov>.
2 Federal Acquisition Regulation. General Structure and Subparts of FAR. 31 Mar. 2009. 3 Apr. 2009 <http://acquisition.gov/far/loadmainre.html>.
3 United States Government. Federal Business Opportunities.. 28 Mar. 2009 <http://https://www.fbo.gov/>.