Read an Excerpt
Federal Contracting Made Easy
By Scott A. Stanberry Management Concepts Press
Copyright © 2013 Management Concepts, Inc.
All rights reserved.
ISBN: 978-1-56726-389-3
CHAPTER 1
How Does Federal Government Contracting Work?
What's in this chapter?
* The big picture
* Top buyers
* Future of federal contracting
* Can you sell to the federal government?
* Should you sell to the federal government?
Federal contracting is big business. By any measure, the U.S. government (a.k.a. Uncle Sam) is by far the largest consumer in the world. No other nation, or corporation for that matter, can begin to match its purchasing power.
Generally we hear only about government purchases for multimillion-dollar aircraft or those infamous $1,000 toilet seats and $500 hammers. But are you aware that there are currently over 350,000 government contractors receiving more than $500 billion worth of contracts each year — $100 billion of which goes to small businesses?
The federal government enters into contracts with American citizens like you to acquire the supplies and services needed to run its operations or fulfill its mission requirements. It uses a specific process designed to give business concerns the maximum practical opportunities to participate in federal contracting. Each year (actually, fiscal year, which begins on October 1 and ends on September 30), the federal government spends billions of dollars buying from nonfederal sources, or commercial contractors.
The government initiates or modifies more than 9 million contracts each year, two-thirds of which it grants to contractors outside the Washington, D.C., area. The key to getting a piece of the pie is to understand how the federal government does business and to position your company accordingly.
Ready? Set? Let's go win some government business! This chapter provides an overview of what federal contracting is all about.
THE BIG PICTURE
Look at it this way: Every 20 seconds of every working day, the federal government awards a contract, with an average value of $495,000. And Uncle Sam must tell us what, from where, and from whom it buys.
The government purchases a mind-boggling array of products and services, ranging from high-technology items like homeland security programs, missiles, ships, aircraft, and telecommunication systems to more mundane items like office furniture, maintenance services, shoes, computers, food, janitorial services, carpeting, accounting services, and real estate. You name it, and the government probably buys it!
Because the government's needs vary from those that individuals and small, singly owned enterprises can meet to those requiring the resources of large corporations, everyone has a potential share. In fact, it is no exaggeration to suggest that a small business can probably provide a service or create a product for nearly every federal agency.
Furthermore, a business can supply the government with its products or services from wherever it customarily operates. In other words, contractors are not restricted to selling to federal agencies in their own communities. A contractor in Memphis, Tennessee, can supply the Naval Surface Warfare Center in Dahlgren, Virginia, just as easily as a contractor operating from Dahlgren. Anyone looking for more customers or thinking about starting a new business should consider the federal government as a prospect.
To help small businesses participate in federal contracting, the government offers a variety of programs and services, including credit assistance, procurement opportunities, technical support, management assistance, and grants. (See Chapter 4 for what constitutes a small business in the eyes of the government.) These programs and services have created and sustained thousands of small firms, generating many millions of jobs in the process. As a result, many of these small businesses have grown into large businesses.
I have personally seen firms go from zero to $50 million or more in federal business in less than five years. No other industry provides more opportunities for small businesses than government contracting. Yet only 1 percent of the 22 million small businesses in the United States participates in federal contracting.
Why doesn't everyone contract with the government? Contracting with the government can be cumbersome, with its regulations, rules, laws, bureaucracy, and red tape. The primary purpose of these detailed rules and regulations is to ensure that the government spends public funds — our tax dollars — wisely. To be successful as a government contractor, you must understand these rules and regulations (see Chapter 2).
Although federal contractors use many of the same business practices as commercial vendors, a number of characteristics clearly differentiate the two. To begin with, the federal government operates in a market that is called monopsonistic — one with only one buyer and many sellers. As a result of this sovereignty, the government has certain unusual powers and immunities that differ significantly from those of more typical buyers, as detailed in the table below. Congressional mandate, rather than state laws, controls federal policy.
Significant differences include:
[TABLE OMITTED]
Government business varies vastly, depending on the products or services being sold. Selling copiers has little in common with selling jet engines. Also, the contracting needs and guidelines of the Department of Defense (DoD) in many cases differ from those of civilian federal agencies.
You need to determine which federal agencies purchase your goods and services and what solicitation procedures those agencies use to acquire them. Part III of this book touches on a number of methods for soliciting and marketing to the various federal agencies.
It's not so much that doing business with the federal government is difficult; it's just different. Instead of selling directly to decisionmakers, as in the commercial world, government contractors must patiently wade through the government procurement process, which makes the sale more complex and longer to complete. If you learn the system and are patient and persistent, the federal government can be a great source of business revenue for both new and established businesses.
TOP BUYERS
During FY 2011, the federal government purchased well over $500 billion worth of supplies and services. The following table shows the major federal agencies and categories in federal procurement:
[TABLE OMITTED]
It's clear from this table that DoD is a major player in the federal contracting landscape, chipping in with over two-thirds of the government's annual purchases.
The following chart shows the value of federal contracts awarded by state (to the top nine states and Washington, D.C.) during FY 2011, in billions of dollars:
[ILLUSTRATION OMITTED]
FUTURE OF FEDERAL CONTRACTING
During the decade immediately preceding the Obama administration, both the legislative and executive branches made a continuing effort to increase the number of services performed by private industry contractors and to reduce the number of government employees. This effort was based on the belief that the competitive forces of the commercial marketplace would produce better products and services at cheaper prices. As a consequence, the already significant contracting opportunities available in the services sector increased even more.
Under the Obama administration, there has been some backlash to this trend. Many government officials and federal employee unions have questioned the cost effectiveness of this "contracting out" philosophy. Additionally, government officials have expressed concern that contractors may be performing services that are inherently governmental in nature. They found support for this concern in the executive branch and among some members of Congress and elsewhere. A study report issued in September 2011 by the Project on Government Oversight, a nonprofit group, found that the government may sometimes pay more for contractor employees than for current government employees.
While the pace of growth in contracting out has slowed, the fact remains that contractors have far more flexibility in hiring, utilizing, and — when necessary — laying off employees. This considerable administrative advantage, coupled with the expanding use of task order contracts (see Chapter 16) and the limited public tolerance for an expanding government workforce, contributes to the continuation of a favorable environment for government service contracts going forward. For product and supply contracts, the government has relied, and will continue to rely, almost exclusively on private-sector vendors.
CAN YOU SELL TO THE FEDERAL GOVERNMENT?
To receive a contract, a contractor must agree to meet (be "responsive" to) the government's requirements. It must also be "responsible," which means that it must have or have provided for the resources needed to do the job and, if it is an established business, must have a satisfactory record of integrity and performance.
Depending upon the type of procurement and the circumstances involved, the contracting officer may do a very detailed examination for responsibility, such as conducting a physical pre-award survey of contractor facilities. In other occasions, such as for many commercial items, the contracting officer may assume that someone active in the marketplace is prima facie (at first sight) a responsible contractor.
Additionally, to receive a contract, a contractor may have to demonstrate or certify to specific criteria for a specific kind of contracting. For example, if the proposed contract is set aside for competition only among small businesses, the contractor may have to certify that it is a small business before being eligible for award.
In general, the government wants to know the following about a potential contractor:
* Is the contractor eligible, under existing laws, to do business with the government?
* Does the contractor have adequate financial resources to do the job?
* Does the contractor have a good performance record?
* Does the contractor's record demonstrate ethics and integrity?
* Does the contractor have the necessary skills to perform the job, or can it acquire them?
* Does the contractor offer prices that are fair and reasonable?
* Does the contractor have the necessary facilities and production capacity to deliver its products?
* Can the contractor meet the performance schedule (or delivery schedule), given other commitments?
The government then uses this information to determine whether a potential contractor is eligible for federal contracts.
SHOULD YOU SELL TO THE FEDERAL GOVERNMENT?
Once you understand the contracting process, the next step is to decide whether you should sell to the federal government.
Advantages
Working with the federal government offers tremendous advantages:
* The government purchases practically every type of supply and service. Plus, federal contracting work tends to be a more reliable source of income than private sector work because the government is open for business in both good economic times and bad.
* The government has more than 2,500 buying offices (or contracting activities) throughout the United States.
* Each major federal agency must provide free assistance to contractors.
* In some cases, the government provides financial assistance, such as guaranteed loans and progress payments (payments made to a contractor based on a percentage of costs incurred or work performed under the contract).
* The government has preference programs to encourage small business participation.
* For FY 2012, the federal discretionary spending budget was approximately $1.34 trillion.
* The government mandates "full and open competition." In other words, a contractor can compete for federal contracts without having to belong to an exclusive "club" of elite contractors.
* The government spends approximately 25 cents of every dollar spent in the United States.
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Excerpted from Federal Contracting Made Easy by Scott A. Stanberry. Copyright © 2013 Management Concepts, Inc.. Excerpted by permission of Management Concepts Press.
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