Insights
Federal Contracting 101 for Small Businesses
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Want to get a government contract? Here’s what to do.
Giant corporations aren’t the only ones that can get government contracts—the federal government’s goal is to allot 23 percent of its prime contracts to small businesses, says John Rau, a mentor at SCORE Orange County with extensive experience in government contracting. In the 2018 fiscal year, the federal government spent $560 billion in federal contracts—the highest levels since 2010—and could remain above $550 billion for the 2019 fiscal year, despite budget control efforts.
The government also buys a wide range of products, which means a lot of small businesses can participate. “The United States government is the single largest purchaser of goods and services in the world,” states Rau, “buying everything from armored tanks, to paperclips and IT services.”
Common myths around government contracting
Rau says that one of the biggest myths surrounding government contracting is that it is very complex. In reality, the government tries to ease the red tape and uses “business-friendly practices, such as buying off-the-shelf items and paying by credit card.” For invoices, Rau emphasizes that “payments are generally made within 15 days after submitting.”
Federal contracts can be a major boon for a small business. Not only is it a stable source of revenue (contract lengths typically range from one to three years minimum), it can increase your business’s value and serve as a gateway to new business opportunities. The government also allocates a percentage of its small business prime and subcontracting budget for companies that fit specific demographics.
“Specifically, 5 percent of prime and subcontracting dollars to small disadvantaged businesses, 5 percent to women-owned small businesses, 3 percent to HUBZone small businesses, and 3 percent to service-disabled veteran-owned small businesses,” Rau explains.
Register as a federal contractor
However, in order to qualify for those government contracts, small businesses must not only be certified with such designations, but they have to register with the System for Award Management, which is a free database that government agencies use to search out potential vendors. It’s important for business owners to update business information on a quarterly basis, so that the government is aware of any new products and services.
Businesses will also need to apply for a Dun & Bradstreet Data Universal Numbering System number, or DUNS number. The DUNS number is a unique nine-digit identification for each physical location of your business and is needed in order to bid on contracts. All businesses also need to figure out their North American Industry Classification System (NAICS) code, which is how the government classifies businesses based off of the primary types of products and services they provide (a business can have more than one NAICS code).
Companies must also meet the Small Business Administration’s size requirements on what can be considered “small,” which the SBA determines by either number of employees or annual receipts. The requirements are different for each industry. For example, the SBA states on its website that “most manufacturing companies with 500 employees or fewer” qualify as a small business, as do “most non-manufacturing businesses” with average annual receipts under $7.5 million. However, there are variations within certain industries, and small businesses should check the size standards for its NAICS industry.
Find out what contracts are available
All small businesses should look into federal contracting needs to research agencies’ procurement forecasts, says Rau. “Every year, each federal agency assembles an annual Procurement Forecast designed to assist businesses in identifying procurement opportunities,” he explains. “The Procurement Forecast is meant for informational and planning purposes only, but it can help you get an idea of where to target your business to win government contracts.” The Federal Business Opportunities website also lists all the currently available contracts.
“It’s up to you to aggressively market your firm to those agencies that buy your products and services.”
Rau recommends that small businesses find a nearby Procurement Technical Assistance Center (PTAC). “PTACs were set up as part of the Procurement Technical Assistance Program to help businesses seeking to compete successfully in federal government contracting,” he says. “These centers provide a range of expert services at little to no charge, including assistance to businesses that want to sell products and services to the federal government.”
Know your FAR policies
Every company doing business with the government must follow the Federal Acquisition Regulation (FAR) policies that pertain to the government agency they are doing business with. “In the commercial or nongovernment sector, there is more flexibility—and perhaps simplicity—in doing business,” Rau admits. “In doing business with the federal government, there is an established set of procedures in the FAR that all vendors must adhere to.” Once a business has researched each agency’s procurement forecast and found the right one, they should familiarize themselves with the regulations pertaining to that specific agency, which will streamline the overall process.
Marketing to the government
Although the government aims to support small businesses, the competition for federal contracts is intense.
Rau says that another misconception is that they think simply registering with SAM is enough to win a contract. “It’s up to you to aggressively market your firm to those agencies that buy your products and services,” says Rau.
A small business needs to develop a marketing plan geared specifically towards the government agency because the needs of the government can be vastly different than the needs of other commercial businesses. Since most government spending falls at the end of the federal fiscal year (September 30), businesses should plan a campaign six to 12 months in advance that should focus on relationship-building and addressing agencies’ specific pain points.
The bidding process
The government can make requests for services in several different ways: Request for Information (RFI), Request for Proposal (RFP), Request for Quotation (RFQ) and Invitation to Bid (ITB). The RFI is essentially to gauge the interest in a request and/or to see whether there is a vendor who can provide the desired product or service. An RFP is a public request made by a government agency for goods or services that potential contractors can respond to, with the government’s overall intention being to reduce costs and make the contracting process more fair. An RFQ is when the government may not necessarily be interested in purchasing immediately but would like to obtain pricing, delivery and other information for planning purposes; the federal agency cannot accept a submitted quote as an offer. An ITB is similar to an RFP, but is usually a request to contractors to submit a proposal for a specific project (usually over $100,000).
The marketing research—understanding what the targeted agency needs and how your business can fulfill that need—will determine how a small business should craft a bid for a contract. After a business submits its bid, they might have to follow up with an “oral presentation,” where a potential contractor may be called in to go into more details over the proposal.
Although price is a significant factor to winning bids, it is not the only thing government agencies take into consideration. The most important thing is a company’s ability to deliver quality products and/or services on time and consistently, so it’s imperative for any small business that is considering federal contracting to make sure that their operations can handle the load.