Did you know that the U.S. government is the world’s largest buyer of goods and services? Not only that, but more than 20% of government contracts are awarded to small businesses. Contracting can be a great way to grow your business, but what types of government contracts are the best fit for smaller firms? Let’s take a quick look.
Understanding the Main Types of Government Contracts
Becoming a government contractor is a complex process, and learning about the different types of contracts and how to bid is crucial. Here’s a quick look at the most common types of contracts you might encounter:
Fixed-Price Contracts
With these types of government contracts, the contractor agrees to complete the work for a set price. Here’s an example. A government agency might issue a contract to paint a federally-owned building for $50,000. If you estimate that you can complete the contract at this price point, it could be a good option. There are also fixed-price incentive contracts, which award a “bonus” fee if you complete the project ahead of schedule.
Fixed-price government contractor jobs can be fairly straightforward, which is a huge advantage in the confusing world of federal contracting. However, if the materials and labor end up costing more than expected, you do have to complete the job at the agreed-upon price, so it’s crucial that you consider the payment carefully before bidding.
Cost-Reimbursement Contracts
With some government contracting jobs, it’s fairly easy to estimate the total cost of a project. With others, it’s more difficult to determine the total cost ahead of time, which is why cost-reimbursement contracts exist. With these, the government pays you back for any costs incurred and adds a small fee for your profit.
With these contracts, you have a lower financial risk than with a fixed-price contract because you will be reimbursed for actual costs. However, this does require detailed accounting and regular reporting to the federal agency’s procurement team. Here’s an example – an agency might contract with a research and development firm to create new technology for the Department of Energy.
Time & Materials Contracts
Just as the name suggests, with these T&M contracts, you are paid based on the number of labor hours worked as well as the cost of materials. These are common when the government doesn’t quite know the scope of the project from the outset. For instance, perhaps you will be providing IT support services for a federal agency.
The advantage of these federal contractor jobs is that you will be paid for time and for the materials you use. However, you must be meticulous about tracking hours and materials, as the government expects careful documentation.
Indefinite Delivery, Indefinite Quantity (IDIQ) Contracts
IDIQ contracts are used when the government knows it will need a certain type of work, but not how much or how often. For instance, GSA schedules (also known as GSA contracts) are a type of IDIQ contract.
When you get on a GSA “schedule,” it means you are an approved vendor for goods and services for many federal agencies. For instance, perhaps you operate a paper company, you might get a GSA contract to provide reams of paper whenever needed.
The advantage is that once you are on a GSA schedule, agencies can repeatedly buy your goods or services without dealing with a new contract every time. The disadvantage is that there is no guarantee that your goods or services will be needed regularly, although typically these contracts include goods or services very commonly needed by federal agencies.
Special Contracts For Small Businesses
While an approved federal contractor with a small business can bid on any of the aforementioned contracts, there are some contracts specially geared to small businesses, including the following:
Set-Aside Contracts
Some federal contracts are set aside just for small businesses. This means only small companies can compete for them, giving you a better chance to win.
There are also special categories for certain types of small businesses:
- WOSB: Women-Owned Small Business
- SDVOSB: Service-Disabled Veteran-Owned Small Business
- 8(a): Small businesses owned by socially and economically disadvantaged individuals
- HUBZone: Companies located in historically underused business zones
With a small business set aside contract, you enjoy less competition from large corporations, and the process is easier and faster. You also can gain access to additional mentoring and support through other SBA programs.
Simplified Acquisition Contracts
These contracts are for smaller purchases — usually under $250,000, which fall under what’s called the Simplified Acquisition Threshold (SAT). Here’s an example: A local maintenance company could be hired to repair HVAC systems in a federal building under a simplified acquisition contract.
These can be great for small business owners or those just getting started with fed contracts because there is less paperwork, fewer requirements, and a faster approval process.
Which Option Should You Choose?
Not every contract type fits every small business. The best one depends on your experience, comfort with risk, and the kind of work you do. Here are a few things to consider:
- Know Your Risk Tolerance
If you can manage your costs tightly, a fixed-price contract can be profitable. If you want less risk, look for cost-reimbursement or set-aside contracts.
- Consider Your Experience Level
New to federal contracting? Try simplified acquisition or set-aside contracts first. More experienced? Explore IDIQ or cost-reimbursement opportunities.
- Check Your Accounting System
Some contracts, especially cost-reimbursement, require detailed financial tracking. Make sure your business can handle recordkeeping and reporting requirements.
- Match the Contract to Your Work Type
Construction and maintenance jobs often use fixed-price or IDIQ contracts. Research and technical work may fit cost-reimbursement contracts better.
- Think Long-Term
Some contract types, like IDIQs, can offer ongoing work and help you build a record of past performance, which leads to bigger opportunities down the road.
Get Started With SAM Registration
While federal government contractor jobs can be very lucrative, there is one big hurdle you must surmount – your System for Award Management (SAM) registration. All federal contractors must have an active SAM account to do business with any federal agency.
The government does not charge a fee for SAM registration, but it is a difficult and confusing process that can take 10-12 hours to complete. If you make any mistakes, this can delay your approval and prevent you from bidding on contracts.
Many business owners opt to hire a SAM registration service for this process. At Federal Contractor Registry, we will complete your SAM registration quickly and 100% accurately, leaving you free to handle the day-to-day of running your business.
If you are a small business owner, our fee includes helping you sign up with the Small Business Administration (SBA) and determining which set-asides might fit your company, from 8a contracts to HUBZone certification or perhaps WOSB or SDVOSB certification.
We will link your SBA account to your SAM account, so that federal procurement agents and prime contractors can easily see that you qualify as a small business. Many prime contractors are required to work with small companies in order to win large government contracts.
The Final Analysis
As you can see, there are many types of government contracts, and several of these might be a great fit for your business. Do some research to see if there is a need for your goods and services, and, if you find some opportunities, contact us at any time for help with SAM registration.