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Types of Government Contracts for Small Businesses to Help You Grow

Government Contracts for Small Business

As the world’s largest buyer, it is no wonder why the United States government is the perfect client to do business with.

In fact, in the last fiscal year 2020, the federal government has awarded a record-breaking $682 billion worth of government contracts, which surpassed the previous year’s spending budget. Experts predict that this figure will continue this upward trend in the coming years, especially with the government mobilizing the private sector to accelerate the nation’s COVID-19 recovery speed.

The government has numerous requirements to keep its federal agencies functioning, from the procurement of computer monitors to hiring logistics providers for vaccine deployment. And that is why no matter what field your small business belongs in, there will always be countless government contracting opportunities for you.

SBA, America's official government organization for small enterprises,  hosts different small business programs to give more federal business opportunities to contractors.

Is government contracting worth it for small businesses?

Yes!

With the support of the U.S. Small Business Administration, the official government organization for small enterprises, the government encourages small business entrepreneurs to work as contractors. They promote and protect the rights of every American small business by implementing policies and regulations, such as mandating that the federal agencies allocate around 20% of their total spending budget for government contracts to small business leaders.

Furthermore, the United States government is looking into further leveling the playing field so small businesses. In President Biden’s recent statement, the federal government will implement various reforms to the existing policies, such as encouraging the federal agencies to increase their goals by 11% to create more opportunities for small business government contractors.

Government agencies set aside a portion of their budget to award federal contracting opportunities to small business leaders.

What are the best government contracts for small businesses?

Industry giants in different vital sectors such as health care and medicalconstructiondefense, and IT continue to dominate the government contracting field. But, that does not mean that they are the only ones who can thrive in this highly-competitive environment.

So to help the small businesses gain equal footing in the government contracting industry, the federal administration has implemented a special contract exclusive for qualified small businesses. This type of contract is called small business set-asides.

Small business set-aside contract

The government limits competition in certain contracts as part of their thrust to level the playing field for small businesses. Government contracts valued within the $3,500 to $150,000 price range are automatically considered a set-aside contract.

Furthermore, set-aside contracts are divided into two kinds: competitive set-asides and sole-source set-asides.

Competitive set-aside contracts

For government contracts valued under $150,000, government contracting officers will solicit proposals from at least two small businesses qualified to deliver the government’s requested goods or services.

However, some competitive set-asides are only available to select small businesses that are part of SBA’s contracting assistance programs. Visit SBA’s official website here to learn more about it.

Sole-source set-aside contracts

Although most set-aside contracts are competitive, there are some instances when only one small business can satisfy the contract requirements. When this happens, the government agency will directly issue a sole-source set-aside contract without going through the usual competitive bidding process.

Additionally, there are times when sole-source contracts are required to be published publicly. Although the government will flag the contract with the intent to sole source, a potential vendor can still take a shot in submitting their proposals. If the potential vendor is more qualified than the original sole-source small business contractor, the government is free to withdraw its intent to sole-source.

To be considered for a sole-source contract, register your business with the System for Award Management (SAM) and participate in any contracting program you may qualify for.

Are you qualified for a small business set-aside contract?

The SBA considers different factors to determine whether your business can be regarded as a small business. These factors vary depending on your industry, but usually, your business size is the crucial factor.

To determine whether your business is qualified for a small business certification, you can use this Size Standards Tool by SBA. To use this tool, input your NAICS codes and state your number of employees working for you full-time and part-time.

Furthermore, the SBA also has different contracting assistance programs to help small businesses in certain socio-economic classes.

What are SBA’s government contracting assistance programs?

The government recognizes that not all small business leaders have equal opportunities. And that is why government agencies give preferential consideration in evaluating bids of small disadvantaged businesses that qualify for SBA’s small business programs.

So to ensure that your small business has access to every opportunity available, here are some of the government contracting assistance programs you should be aware of:

Women-owned small business

For industries where women-owned small businesses are discriminated, the government sets aside specific contracts. Furthermore, the federal administration tightened the restrictions on some contracts to give economically disadvantaged women-owned small businesses better chances of winning federal contracts.

Learn more about the benefits of women-owned businesses by visiting SBA’s official website here.

Small disadvantaged business

Small businesses owned by socially and economically disadvantaged people are qualified to participate in this program. Under this program, the government opens up more contract opportunities to prejudiced business leaders by earmarking around 10% of federal contract dollars each year.

Visit this website to know if your enterprise qualifies as a small disadvantaged business.

Service-disabled veteran-owned small business

Veterans, especially the service-disabled veterans, are eligible for specific set-aside contracts under this program. The Department of Veterans Affairs (VA) allocates a considerable portion of its federal contract spending budget to service-disabled veteran-owned small businesses every fiscal year.

The preferential consideration for veterans and service-disabled veterans isn’t limited to VA only. Other federal agencies give set-aside opportunities to win more government contracts like other programs.

Learn more about how a veteran-owned business can benefit from this program here.

Small business in a HUBZone

Small businesses established in Historically Underutilized Business Zones or HUBZones are entitled to compete for this program’s specific set-aside federal government contracts. Government agencies also give preferential consideration to HUBZone-certified small businesses in full and open competition for contract opportunities.

On top of that, HUBZone small businesses are also eligible to compete for contract awards under other contracting assistance programs that they qualify for. So if you are running a woman-owned small business located in a HUBZone, you can compete for set-aside contracts dedicated to both socio-economic programs.

Learn how this program protects disadvantaged businesses in HUBZones here.

GSA Multiple Award Schedule Program

Aside from set-aside contracts, the Multiple Award Schedule (MAS) Program of the U.S. General Services Administration is an excellent avenue for small business leaders to start selling to the federal government. This program, also known as the Schedule, is a long-term government-wide contract that connects government buyers to federal contractors.

The General Services Administration acts as a middleman where a contracting officer can access over 11 million discounted commercial goods and services offered by countless government contractors.

The government contracting industry offers business leaders opportunity to grow their businesses to support the nation's overall economic development.

Other government contract types you should know about

Set-aside contracts are not the only government contracts you should aim for as a small business leader. The U.S. government offers numerous contracting opportunities for small businesses in different forms, too!

Fixed-Price Contracts

As its name suggests, a fixed-price contract is a government contract where the government agency already decides its price in advance. Federal agencies, usually those in the defense sector, utilize this contract type when they already have a clear scope of work in mind.

But, that’s not all. This type of government contract may be straightforward, but it has different and more complex variations that you should keep in mind.

Firm Fixed-Price (FFP)

Before you agree to a Firm Fixed-Price contract, you have to be confident that you know how to price your goods and services right.

This type of fixed-price contract means that no matter what happens during the contract period, the value of the contract will never change. In this arrangement, the contractor shoulders the risk of cost overruns, so you have to be wise in pricing your goods and services.

If your rendered services cost more than the agreed contract price, you are responsible for absorbing the excess expenses. However, if the project went smoothly and cost less than the contract price, you can keep the profits.

FFP Level-of-Effort

Compared to the previous contract, an FFP Level-of-Effort contract is given to projects when the government cannot provide a precise number of required products or services. So instead of results, the contract value will be determined by the level of effort the contractor will commit to the project.

An FFP Level-of-Effort contract is usually used in research and development projects since there are no guarantees of what kind of results it will yield.

FFP Materials Reimbursement

This type of fixed-price contract acknowledges the fact that the price of materials frequently changes due to demands.

Although there is a predetermined contract price at the beginning of the agreement, the government will still reimburse the contractor for their additional material cost. This type of government contract is usually implemented on repair and overhaul projects since the price of the materials may move during the contract period.

Fixed-Price with Award Fees

In addition to the profit you will gain from completing the project under this type of government contract, you will also earn an additional bonus if you manage to satisfy the subjective needs of the agency, such as improving the aesthetics of your goods based on their suggestions.

Fixed-Price with Economic Price Adjustment

Similar to the FFP Materials Reimbursement contract, this type of government contract, on the other hand, covers more bases in general. With the Fixed-Price with Economic Price Adjustment, the federal agency will take note of the movement of the cost of labor, materials, and other expenses incurred during the project.

But, the government will not accommodate all the price changes during the contract period. So as a government contractor, you should pay greater attention to the specified criteria of allowable price adjustments indicated in the original contract.

Fixed-Price Incentive (FPI)

Agreements made under fixed-price contracts deter government contractors since they bear the greater burden, especially when the project fails. And that is why the federal government offers incentives through Fixed-Price Incentive contracts to lessen the risk that small business leaders take.

Suppose you decide to enter an FPI contract with the federal government. In that case, you will be receiving an additional reward if your total project expenses are lower than the defined contract ceiling price. To put it simply, you get to keep the profits plus the incentives.

Cost-Reimbursement Contracts

Compared to fixed-price contracts where the value of the contract is already decided right from the start, cost-reimbursement contracts, on the other hand, are a type of contract where the government defines a spending limit instead. With this contract, the federal government will reimburse the incurred cost of the government contractors at the end of the project.

Cost Contracts

The federal government will only reimburse the cost incurred during the project, excluding the profits in cost contracts. The government usually awards Cost Contracts to non-profit organizations performing research and other similar services.

Cost-Plus-Fixed-Fee

Under the Cost-Plus-Fixed-Fee contract, the government will be reimbursing you the project cost and give you an additional fixed fee to compensate for your services. With this arrangement, you are guaranteed to earn profits in doing the project.

Cost-Plus-Incentive

Similar to how Fixed-Price Incentive contracts work, you will receive an incentive if your total project expenses are lower than the projected cost on the original contract.

Cost-Plus-Award-Fee

To further encourage small business entrepreneurs to compete for more federal contracts, the government also awards additional bonuses to its contractors who displayed stellar performance under this contract. The contract should define the criteria for performance bonuses before the agreement.

Cost Sharing

If both you and the government stand to gain something from a project, other than monetary profits, the government may issue a Cost Sharing contract in this scenario. Cost Sharing means that you, the contractor, agree that you will absorb a portion of the project’s total expenses in exchange for more substantial rewards that you can earn after the project. This kind of contract arrangement is more common in research and development projects.

Time and Materials Contracts

The government may propose a Time and Materials contract when the cost and project duration are too hard to determine initially. Instead of having a fixed contract value, the government will pay for the personnel’s hourly wages and the cost of materials instead. Since this type of contract poses a greater risk to the government, the award this type of contract sparingly.

The government normally issues a Time and Materials contract for huge construction projects where the government hires trusted contractors to execute this complicated contract.

Indefinite Delivery, Indefinite Quantity Contracts

The government awards an Indefinite Delivery, Indefinite Quantity (IDIQ) contract if they cannot determine an accurate number of supplies or services needed during a specified time. So instead, the IDIQ contract will define a range where selected government contractors can bid for the lowest price.

Under IDIQ, the government can place delivery orders for supplies or task orders for services for the needs of a specific federal agency or the government as a whole.

Small business owners interested in the federal contracting industry should  understand that being a government contractor takes guts and grit.

As you can see, the federal government spearheads various efforts to level the playing field for small business leaders like you. By offering diverse contract arrangements, you can finally find a contract that not only aligns with your needs but also plays to your strengths.

However, despite these attractive government contracting options that are up for grabs for small business owners, there are still several small-time industry players who steer clear from the federal marketplace due to the industry’s overwhelmingly tedious registration process.

But, don’t worry! We got you covered.

Before you qualify for government contract opportunities, you should register your own business  to the gov websites first!

How to be a government contractor?

Signing up your small business to qualify for government contracting opportunities is truly unnerving, especially when it requires you to undergo a strict and thorough process. But once you have nailed down these basics, there’s nothing that can stop you on this journey.

1. Apply for a Federal Tax ID

Before getting your federal tax ID, make sure you have officially registered your business name first. After that, head over to IRS’s official website to apply for your federal tax ID. Your federal tax ID will enable you to open a corporate bank account where government agencies can wire their payments to you in the future.

2. Request for your DUNS Number

Getting your DUNS number is pretty easy! To request your unique 9-digit code, all you have to do is submit your application to the official website of Dun & Bradstreet. The application process usually takes around 2-3 business days.

3. Identify your NAICS code

Compared to the previous steps, you don’t have to undergo an application process to get your NAICS code. To start, visit the North American Industry Classification Systems website, then identify which NAICS code best describes your goods and services from its directory.

4. Register your business at SAM

Once you have satisfied your preliminary requirements stated in the previous steps, it’s now time to register your small business at SAM. This is necessary to enable your business to start bidding on government contracts.

5. Complete your SBA profile

Many government contractors miss this step, so make sure you fill out your SBA profile after registering your small business at SAM.

Having a complete SBA profile means that your small business will appear at the Dynamic Small Business Search (DSBS), a federal procurement data system by the Small Business Administration. Government contracting officers utilize this search tool during their procurement process for certain contracts. Usually, the contracting officer looks at a contractor’s SBA profile to see who they are and where their specialty lies. In addition, they can also see there whether your small business is qualified for SBA’s contracting assistance programs mentioned above.

To know more about how to be a government contractor as a small business owner, check out this beginner’s guide we’ve created for you!

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