Recently, the United States Government and its government agencies have announced different business opportunities for large corporations and small businesses to potentially submit a proposal for.
With thousands of businesses interested in federal contracting, tons of them have already made and submitted a proposal hoping to get a healthy revenue stream by providing the product or services the federal needs.
But, despite the numbers of businesses in the federal’s database, all of them fall into different categories – contractor and subcontractor. These two works in different ways, and for this article, we will be talking about the advantage and disadvantages of being a government contractor.
Pros of Being a Government Contractor
If you consider becoming a government contractor for our dearest Uncle Sam, it is probably for the money. This can be a valid reason, and the pay can undoubtedly be good. Though trade-offs exist, becoming a government contractor can help you earn more than being an employee.
So how much can you make in the government contracting industry? The figures depend on the role or projects and the agency you will be working with.
Making federal contracts will give you more wiggle room in your business activities and growth. As a business owner, you have the freedom and flexibility to decide which type of work you would like to take or reject. You can try bidding for federal contracts, and if you do not like how it goes, you can decide not to renew your business profile once the contract is complete.
Easy to get
Even though a government contract requires a significant number of paperwork, working for these jobs is way easier than applying as a federal employee.
Another benefit of applying for a government contract is that small businesses can easily take advantage of set-asides, which are contracts reserved from them exclusively. A set-aside allows a small business to compete against other small businesses. As a potential contractor, you will need to register with the SBA and qualify at least one of the following categories:
- Service-Disabled-Veteran Owned
- Women-Owned Small Business
- 8(a) Business Development
- Historically Under-Utilized Business Zone (HUB)
A foot in the door
Government positions are difficult to land, but many people always aim at them due to their pay, benefits, and stability. If having a job in the federal government is one of your goals, contracting can be one way to get a step foot in the door.
Working in government contracting will give you valuable experience and an excellent network of contacts. Few federal contractors are offered full-time work, making it easier to transition than someone without relevant experience.
It is given that getting into your first government contract provides a great learning curve. As you meet the government’s demand, you can potentially be considered for long-term relationships. Some arrangements are for just one year, but many are for three years at a minimum. That having said, once your contract period is over, you can expect a renewal if you have done good work and fulfilled your end of the agreement.
You are dealing with government agencies means that you can assure payments. This means a low risk of doing work and not getting paid.
Although government payments are typically made within 30 days or even sooner for construction services, if the government contracting department fails to pay within the contract terms, they will also pay you with interest on the amount they owe.
Cons of Being a Government Contractor
The federal government appoints tons of rules and regulations. All federal contractors must strictly follow the Code of Federal Regulations.
The following are some of the set of rules based on the Code of Federal Regulations
- Register with the System of Award Management System for the bidding process.
- Be part of the Small Business Administration database for consultations and government contracting assistance.
- Acquiring NAICS Code, DUNS number, and CAGE code.
- Write up an RFP or RFQ for different contracts you want to bid on.
It is also crucial for companies and their employees to be able to pass a different background check on the following aspects:
- Criminal records
- Motor vehicles and license records
- Credit History
If you plan on becoming a federal contractor, make sure that all your employees can pass this intensive screening. If any issues can affect your qualifications, such as participating in programs that rehabilitate criminals by providing them jobs, make sure to inform the federal government ahead of time.
It is a mistake to assume that the government contracting marketplace is unsaturated. The federal government contracts could potentially uplift private companies and small businesses, leading to thousands of prime contractors’ applications.
If you’re a small business owner and lose a contracting competition to a large corporation, lack of experience or resources can be the biggest reason. You may want to consider subcontracting first and work with prime contractor awarded service contracts.
While your profit in doing government contracts might be a bit higher than a regular federal employee, you and your company would not get any benefits such as health insurance, paid time off, or retirement packages.
Pursuing contract work comes with this downside, but you should understand that self-employment comes with sacrifices if you desire to drive your business into the industry.
Dealing with government employees
There are times that government agency employees look down on contractors having the thought that they are causing more difficulties in the job and trying to get them fired. If you do not see yourself taking all these stressful moments, then government contracting is not the job for you.
Get ready for frustrations
If you are the type of business owner who is used to getting things done as soon as possible, you shall have more comprehensive thoughts about the government contracting industry. As mentioned above, it follows strict regulations making it time-consuming to get the award.
Their decision to choose the company or business to work with passes through different stages, and asking you additional questions at no specific time slows down the process even more, which can be incredibly frustrating.
In this article, “stable employment” is enlisted as a benefit to government contracting, but there is always a downside to that. Since contracts differ in validities, there is always the possibility that the contract will end suddenly or not be renewed.
Since the federal government is a Sovereign entity, it has the power to revise your contract, change the priority of work, quantities and even terminate your contract instantly. Additionally, the government can change budgets, resulting from irritation because what you thought a secure gig turned into nothing.
While government contractors can count on being paid, there are exceptions. Contractors are left hanging in the air when the government shuts down the project. In 2019 the government got tons of media and state attention for not paying furloughed government contractors.
You might end up doing an excellent job for a government agency, yet you may still find yourself under the federal’s eyesight because of the taxpayer dollars and bureaucracy. The government can put surveillance on your business.
Also, there are rare moments when they may ask for an audit of your financial records, which can be inconvenient, costly, and time-consuming.
Do government contractors make good money?
With the mentioned pros and cons above, you may still wonder if a federal contractor makes good money?
Having big competition from small businesses and companies, we can conclude that the government contracting industry is profitable.
Is being a government contractor worth it?
The definition of whether being a government contractor is worth it or not will come from your end.
But if you do not see yourself getting through a complex process and are scared of the potential failure or cancellation of government contracts, then being a contractor might be for you. But if you are eager and brave enough to face all the industry’s uncertainties, you can indeed say to yourself that all of your hard work had paid off when you got your first government contract or first payment.
Is it better to work for the government or a subcontractor?
If you do not think you and your business cannot do what the federal government requires and are worried about the possible pull out of contracts, you may consider subcontracting.
Subcontracting works for businesses to do a specific task under prime contractors awarded a government contract. Take note that when subcontracting your business is not directly working for a government agency, your effort is not given credentials on the public announcement.
However, subcontracting can help your company learn a lot about the industry, which can help you enhance your skills and prepare yourself and the company as you bid for federal business opportunities later on. Also, you can bid and work on many contracts by doing subcontracts.
Additionally, whether you decide to work for a government agency or partner with other businesses as a subcontractor, make sure that you evaluate the capability of your company and understand the pros and cons along with it.
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