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Introduction to U.S. Government contracting

By Brad Redderson

When the town of Somerville, Tennessee put three simple construction projects out to bid last Autumn, they anticipated receiving a number of competitive bids that would fit within their budget. They received zero bids.

Even though the projects were bid in November when the busy construction season had wound down, there were apparently no contractors interested in the work. So the town of Somerville asked the NAPC for help, and we worked with Tennessee-based Vendor Registry to actively promote the projects to local contractors when the projects were rebid. This worked and Somerville got the bids they needed and were able to award the contracts in February.    

The North American economy is growing due to an increase in population and government spending, yet the capacity of government contractors is not necessarily keeping pace and too many agencies are getting no bids or paying much more than they should for goods and services. This means that great opportunity awaits the persistent and clever bidder.

Licking County courthouse in Newark, Ohio. Photo by Derek Jensen

The U.S. economy is constantly evolving. The first economy was based on trade, then on agriculture and resource extraction, then on manufacturing and lastly on consumerism. As the consumer economy has declined, a greater portion of the economy has shifted to government spending and there is now substantially more opportunity to do business with government agencies than ever before.

One of the missions of the NAPC is to help private companies do business with government agencies.  We do this by providing free and open acces to bid lead reports, business news, classified ads, white papers and direct assistance.

This article was written as an introduction to doing business with government and will cover some of the basics but certainly not everything a company needs to know.

What Is a Government Agency?

A government agency is an administrative “unit” organized to manage certain specific functions of government.  It is centrally funded, usually from public fees of one sort or another, and ordinarily has an operational role.

Such agencies exist at every level of government operation. There are federal, state, county-parish-township, local municipality, utility districts, fire districts, schools and many other types of agencies. In the U.S., examples of federal government agencies include:

  • Armed Forces (Army, Navy, Marines Corps, Air Force, etc.)
  • Department of Agriculture
  • Federal Housing Administration
  • NASA
  • National Park System
  • National Institutes of Health
  • Federal Aviation Administration (FAA)
  • National Endowment for the Arts
  • Food and Drug Administration
  • National Oceanographic and Aerospace Administration (NOAA)
  • Federal Communications Commission
  • Federal Bureau of Investigation
  • Centers for Disease Control (CDC)
  • Federal Bureau of Prisons

Why You Should Consider Doing Business with a Government Agency

Government agencies in the U.S. spend more than $2 trillion each year on goods and services. This represents the single largest market in North America.

Most agencies pay their suppliers on time and rarely go bankrupt. So there is less risk of not getting paid.

The types of work available include almost anything you might imagine: from construction to communications, equipment resale or lease and services ranging from software to legal services, travel, commissioned scientific research and even the arts.  There are also major supply opportunities for items from fuel to printer paper, wall paint and clothing.

In addition to that, even though the agencies themselves often have an exclusive local, state/province or federal charter for their administrative area, most are required to outsource much of their non-core work.  This is as much because of a desire to run most efficiently and to encourage private industry growth nationally as well as locally.

These agencies also operate in most major population centers.  This means it is likely that an agency close to you is looking for companies just like yours to help them out.

How Government Agencies Do Business

At the simplest level, government agencies are not that different from any other organization in how they go about contracting for outside support.  They set high level goals for their groups, agree on major projects, and plan how to accomplish those projects.   Then they use a combination of internal resources and outside organizations to implement their plans.

Where government agencies are quite different in how they do business lies in how they go about buying the outside services and materials needed to support their goals.  

In the private sector, small or routine purchases are made without a contract or bidding process. Even larger contracts with outside companies are often awarded to vendors based on past experience or personal connections. On larger contracts, private companies may ask for competitive bids to get the best price and terms, but even in those cases the bidding is rarely if ever open to just about anyone.

For government agencies, there are two major differences in how they do business. The first is that they are many, but not all, are required by law to have an open and competitive bidding process for expenditures over a certain value. This means that any company able to meet the minimum qualifications for a contract is eligible to bid.

Every state government has some type of legislation for purchases by state agencies, but many states have no regulations over county, city and other non-state agencies. Many agencies do NOT adhere to sound procurement practices.  

The second difference is that government agencies are also legally restricted in many ways in how they engage with potential bidders throughout the procurement process.  These restrictions cover things such as deadlines during the bid process, strict adherence to the bid specifications and even such simple things as accepting an invitation to lunch with a potential vendor.  For those new to the process, these rules can seem daunting.  But when enforced they do help ensure an open and fair process for the vast majority of bid opportunities.

Registering to Do Business with the U.S. Federal Government

While registering is not required for all types of agencies, it is required for doing business with federal agencies.

Registration is relatively straightforward and can be done quickly and securely without leaving your office.  Just log into the website at http://www.sam.gov and follow the instructions.

This site, titled “System for Award Management”, is a new site that consolidates government contractor and purchasing resource functions that used to be spread out among several different locations.  Once your contractor registration has been submitted and accepted, you are ready to search and apply for U.S. federal government bids.  This registration may also be helpful in securing state and local bids as well.

Pre-qualification

Some contracts may require bidders to be pre-qualified before being allowed to submit a bid. What this means is that your company must request and complete a pre-qualification questionnaire, meet the requirements and be accepted before being allowed to submit a bid.

Some agencies require pre-qualification for many types of solicitations, not just complex construction projects.

Formal Versus Informal Bids

For most of the bigger contract solicitations you will find on NAPC portals, the bids are what are known as “formal bids”.
Although the details will vary from agency to agency and sometimes with the type of solicitation, formal bids always have several things in common, in that the contracting agency must often:

Formally advertise for bids (so that the largest potential pool of bidders knows exactly what needs to be bid far enough in advance)

Provide adequate time for bids to be prepared

Follow precise legal and operations requirements for the reviewing of bids

For formal bids to be accepted they must:

Be submitted in writing

Be prepared in precise conformance with a specified format that will often include a prescribed digital as well as paper version of the format.

Be submitted by a specific date and time

Such formal bids will often be submitted in a sealed envelope, to be opened only by the government agency‘s representatives at a specific date and time after they have received all competitive bids.  

Depending on the specific bid, a contractor planning to submit a Formal Bid may be required – in advance of submitting a bid -- to do things such as:
Attending a pre-bid conference (to ensure that everyone gets all the same data necessary to enable them to submit the best possible bids)

Visiting the project site where the work may be done

Submitting an RFI (Request for Information) document to the government agency even before being  allowed to submit your actual proposal  (to  ensure that the minimum requirements for actually being able to carry out the final awarded contract are met.)

If your bid is not compliant with all the formal requirements for that agency submittal, it will in most cases be automatically rejected with no opportunity to resubmit.
Informal Bids are, like the name implies, not constrained by formal rules. Contracting agencies requesting Informal Bids may not need to announce them publicly in advance.  Also, the review process is often much simpler than for Formal Bids.  

For you as a contractor or vendor, informal bids must still need to be carefully prepared and submitted with complete documentation as specified in the solicitation. Unlike formal bids, however, they are often submitted:

Unsealed (effectively “open upon receipt”)

By letter, fax or even email (all of which are considered less secure and less ‘formal’ than the other kinds of bids)

Informal bids are still generally submitted competitively, and, as in many government agency bids , the lowest price bid that fulfills all the requirements of the solicitation will be the winning bid. But there are far less rules involved.

Prime Contractors and Subcontractors

Two terms you will often run into as part of bid requests are the concepts of prime contractors and subcontractors.

In government contracts, a prime contractor is the  or organization that holds the contract for all the work on a given job with that government agency.  

The prime contractor is also the one that submits the entire bid for the job, negotiates the terms for it, and signs the contract with the agency.

Prime contractors, especially on larger or more complex projects, hire other companies, or subcontractors,  to do specific tasks for them as part of their overall contract for the agency.  As an example, a prime contractor responsible for constructing a new building might hire subcontractors to set up the electrical systems, install roofing and put sprinkler systems in place.

Subcontractors are different from prime contractors in several ways.  Among other things, subcontractors are contracted, paid for, and managed by the prime contractor.  Although they may a part of on-site installations, customer meetings and more, subcontractors have no direct responsibility to the prime contractor.  

Also, subcontractor bids are solicited by and negotiated solely with the prime contractor.  Subcontractors ordinarily have no direct engagement with the government Agency as part of the contracting process but often a list of proposed subcontractors must be submitted with the bid.

Subcontractors often share with prime contractors the same rules, compliance guidelines, government regulations, and even the requirement for contract-specific certifications such as ISO (a special certification provided by the Organization for Standardization) and safety approvals such as UL, CE, and TÜV.

The prime contractor is also the one who is paid directly by the agency, files regular progress and compliance reports and negotiates any contract changes with the government agency.

Depending on the nature of the bid you are pursuing, you may bid as a prime contractor (and then arrange for your own subcontractors as needed), or you may look for a prime contractor partner who might need you to do subcontract work for them.

Precautions for those Newly Entering the Government-Contracts Arena

The $2 trillion in U.S. and Canadian goverment spending represents tremendous opportunities for many businesses but it also represents greater potential costs and risks than for private-sector business.

When a contractor bids, they put not just their reputation – but also (even with insurance and bonding) – their company on the line.  Whether you are pursuing a Fixed Price Contract (where you are in effect certifying that the price you are charging is all that is needed to complete the work) or a Cost Plus Contract (where ‘good-faith estimates’ may be adjusted later but only after pre-approval and only under certain conditions), your company will hold the responsibility to get it all completed as specified, at cost, and on time.   

And with you depending not just on yourself but on subcontractors as well, there are many variables at play.  Weather, fuel cost, labor cost and supply issues that are out of your control, and even just well-meaning mistakes in the planning process on your end, could result in delays, cost overruns, and specification shortfalls.  All of these can lead to company embarrassment as a minimum, daily fines for not completing a contract and situations as extreme as lawsuits and company- asset seizures in some cases.  

Even with bonding, insurance and the utmost care in planning and risk management, sometimes things go wrong even in the best of situations. Those worst cases are rare, but they must be considered carefully as you prepare your bids and your work.

Such thoughtful planning can bring your company tremendous rewards.  

Some of the risks can include:

Delays – Sometimes a construction project requires permits that are not readily obtainable and work must be postponed until they are. Or they could be unexpected delays caused by weather, public opposition, unanticipated environmental or archaeological factors.

Over-committment – One of the risks that contractors must face in bidding is getting too much work at once and not having the resources to complete all contracts on time.  Many contracts can impose severe penalties for non-completion.

Differing Site Conditions – A construction contractor prepares their bid based on the information available to them but must be prepared for the unexpected. A road that must be cut might turn out to be 12” thick instead of 3” or a building may contain asbestos that isn’t supposed to there.  It is best to account for such variables in the contract so that the contractor doesn’t bear the risk. However, some risk must be factored into a bid.

Supplier or Sub-Contractor Non-Performance – A contract may require the use of suppliers and or sub-contractors. Every time you have to rely on someone else you incur risk if they don’t perform as required or supply the products specified at the cost quoted.  Be sure that you have enforceable agreements with every supplier and sub-contractor and back-ups in the event that one of them fails to perform.

Corruption –Corruption within government agencies is at an all-time high and is getting worse.  Each year, hundreds of billions of dollars of taxpayers money is stolen, wasted or mis-allocated. In some cases the loss of taxpayers money is through incompetence but in many cases it is the result of criminal activity on the part of government employees.

Contractors and Vendors may be tempted to take advantage of opportunities to participate in improper procurement practices but should resist the temptation.  Penalties can be severe and include the loss of one’s business and a lengthy prison sentence.