Federal Contracting Made Easy

FEDERAL CONTRACTING MADE EASY

5th Edition

FEDERAL CONTRACTING MADE EASY

5th Edition

Scott A. Stanberry

Copyright © 2024 by Scott Stanberry

All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by an information storage and retrieval system, without permission in writing from the publisher, except for brief quotations in review articles.

Printed in the United States of America

ABOUT THE AUTHOR

Scott A. Stanberry has been working with government contractors for over 25 years. He specializes in providing auditing and accounting services for commercial clients with federal government contracts and in assisting government agencies in the administration of federal contracts. Scott is a certified public accountant and is highly experienced in the application and interpretation of the Federal Acquisition Regulation.

Imagination is everything. It is the preview to life's coming attraction.

—Albert Einstein

Where are YOU Going?

Or, in my case, where you been??!! Well, if the book covers below could talk…Let’s just say, like in federal contracting, there’s a lot of politics in the publishing biz!

But it’s great to be back and as you’ll see with this fifth edition of my book (5th Edition, I still can’t believe it!), I finally got to do it my way! Meaning more humor and fun, great new quotes, and finally, the book cover I’ve always wanted.

Anyway, getting back to the introduction, where are YOU planning to go in federal contracting?

I’m reminded of the story about the brilliant but absent-minded scientist, Dr. Albert Einstein. He was usually in such deep thought that he frequently ignored common daily activities.

Once, while on a train, Einstein told a young conductor that he could not find his ticket. The conductor said, That’s okay, Dr. Einstein. Everyone knows who you are, and I will take your word that you have a ticket. 

When the conductor returned a few minutes later, Einstein had papers spread all over his seat, and he was feverously looking for his train ticket. The conductor said, Dr. Einstein, I do not need to see your ticket because I know who you are. Einstein replied, Young man, I also know who I am – I need the ticket to know where I am going.

Hopefully this 5th edition will be that valuable ticket and help the reader to decide where he or she really wants to go as a federal government contractor.

Best wishes and happy contracting!

Scott Stanberry

CONTENTS

Preface

Part I What Is Federal Government Contracting?

Chapter 1 How Does Federal Government Contracting Work?

Chapter 2 The Rules of the Game

Chapter 3 Key Players

Part II  How Your Business Size Offers Opportunity

Chapter 4 Opportunities for Small Businesses

Chapter 5 Small Business Preference Programs

Chapter 6 Subcontracting Opportunities

Chapter 7 Federal Supply Schedules/GSA Schedules

Part III How to Find Government Contracting Opportunities

Chapter 8 Marketing to the Federal Government

Chapter 9 Support Programs and Services for Contractors

Part IV  How the Government Issues Procurement

Opportunities

Chapter 10 Simplified Acquisition or Small Purchase Procedures

Chapter 11 Sealed Bids

Chapter 12 Negotiated Procurements

Chapter 13 The Uniform Contract Format

Part V   Contract Types and Administrative Requirements

Chapter 14 Fixed-Price Contracts

Chapter 15 Cost-Reimbursement Contracts

Chapter 16 Other Contract Types

Chapter 17 Contract Administration

Appendix A: Acronyms

Appendix B: Federal Agencies and Departments

Appendix C: Glossary

Appendix D: Standard Forms (SF)

Preface

Did you ever run a lemonade stand as a kid? Ever sit by the side of the road for hour after hour in the hot sun, waiting for someone—the mail carrier, the obnoxious neighbor kid, anyone—to walk by? Or maybe, as you got older, you decided to open a bike repair shop in your garage, dreaming of owning a bicycle empire, only to find that your business was still essentially sitting by the side of the road, waiting for customers?

That’s the story of thousands of businesses that fail each year: a good idea or product but no knowledge of how to run a business or attract customers.

This book was written to help you attract and make the most of the biggest customer of all: The U.S. government. The federal government spends more than $750 billion on just about anything and everything each year. That’s a lot of lemonade!

What’s more, every major federal agency and department is required by law to provide free assistance to businesses interested in bidding on federal work. So, whether you’re an entrepreneur interested in breaking into the federal market or a mid- to large-sized company seeking to maximize your use of (and financial return on) subcontractors, this book tells you what you need to know. 

The downside to federal contracting...? Marketing to the federal government is like trying to learn the rules of your kid’s video games. The characters all have incomprehensible names; some players seem to have secret powers, and at any second, somebody can throw a bomb that completely knocks you off the screen. How can you win if you’re not the 11-year-old king of the arcade with a never-ending roll of quarters and the insider knowledge that comes from devoting yourself to the game 16 hours a day?

That’s why I’ve written this book: to help you decode all the confusing rules, get to know the other players, understand the obstacles thrown in your path, and maybe acquire some secret powers of your own. This book spells out everything you need to know to succeed in the federal arena—from the people who oversee the contracting process to the regulations that govern contracting to the types of contracts awarded. You’ll get the inside scoop on government contracting—all from one source.

All you need to know is inside this book, and you can refer to these pages again and again as your business grows and you go after greater government opportunities. While much of this book deals with small business programs and services, it also contains a significant amount of information that applies to all types of companies. Even if you or your staff are familiar with some pieces of the federal contracting puzzle, there may be areas where you could use some explanation or insight.

Of particular interest to current contractors, this book offers specific suggestions on how mid-to-large-sized companies can take advantage of some of those small business programs through subcontracting—something virtually every government contractor too big to qualify as a small business does on a regular basis. In short, if you’re currently working for a business (large or small) or thinking of starting your own, this book is for you!

One word of caution: Government regulations and procedures do not make for keep-you-up-all-night, can’t-put-it-down reading. Wading through some of this information may take patience and persistence but just like that 11-year-old who suffers through hours of frustration to learn the video game, you’ll find rewards at the end of the process. You can make good money—even big money—doing business with the federal government. Contracting with the government can make you king of the arcade and give you the biggest lemonade stand on the block!

Part I

What Is Federal Government Contracting?

Chapter 1: How Does Federal Government Contracting Work?

Chapter 2: The Rules of the Game

Chapter 3: Key Players

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, our 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 $750 billion worth of contracts each year––$178 billion of which goes to small businesses?

The government enters into legal contracts with American citizens like you to acquire the supplies and services needed to run its operations and/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. It 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 $500,000. Not only that, but 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 missiles and ships to procuring medical supplies to help fight the COVID pandemic to more mundane items like office furniture, shoes, computers, food, janitorial services, carpeting, accounting services, real estate, etc. You name it and chances are 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 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, therefore, 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 support, procurement opportunities, and management assistance. (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 business firms, generating millions of jobs in the process. It’s also worth noting that many of these small businesses have grown into large businesses themselves.

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% of the 22 million small businesses in the United States participate in federal contracting.

This ultimately begs the question: Why doesn’t everyone contract with the government?!

Simply stated, contracting with the government can be cumbersome, with its regulations, bureaucracy, and red tape. Or, to explain it another way, federal policy requires detailed rules and regulations to ensure that the government spends public funds––our tax dollars––wisely. Therefore, to be successful as a government contractor, it is imperative you understand these rules and regulations covered in 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 termed 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. Congressional mandate, rather than state laws, controls federal policy.

Significant differences include:

Federal Contracting ​ ​Commercial Contracting

General:

Profit Margins:

Contract Clauses:

Contract Termination:

Social and Economic Policies (such as a policy requiring contractors to maintain a drug-free workplace):

The federal government business landscape also varies vastly on the products or services being bought and sold. Selling copiers, for example, has little in common with selling jet engines. In addition, contracting with the Department of Defense (DOD) differs from contracting with civilian federal agencies.

You’ll, therefore, 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 various buying activities.

It’s not so much that doing business with the federal government is difficult; it’s just different. Instead of selling directly to decision-makers, as in the commercial world, government contractors must patiently wade through the government procurement process, which, in many cases, can make the sale more complex and take longer to complete.

But, 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

In FY2023, federal agency contracts totaled well over $750 billion, a new record! The following tables show the top federal agencies and major product and service categories in federal procurement.

Top Product or Service Categories (by NAICS Code)

Clearly, 2023 was a banner year for government contractors. And chipping in with over two-thirds of the government’s annual purchases, it’s clear to see DOD is a major player in the federal contracting marketplace.

The value of federal contracts awarded by state (top ten) during FY2022, in billions of dollars, is as follows:

FUTURE OF FEDERAL CONTRACTING

During the early 2000s, there was a continuing effort on the part of the government, in both the legislative and executive branches, to increase the number of services performed by private industry contractors and to reduce the number of government employees. 

The belief is that the competitive forces of the commercial marketplace will produce better products and services at cheaper prices. As a consequence, the already significant contracting opportunities that were available in the services sector increased even more.

However, most recently, 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 expressed concern that contractors may be performing services that are inherently governmental in nature.

They’ve found support in the Executive Branch and among some members of Congress and elsewhere. Studies 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.

But the fact still 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 a continuing favorable environment for government service contracts going forward.

For product and supply contracts, the government has and will continue to rely almost exclusively on private sector vendors.

CAN YOU SELL TO THE FEDERAL GOVERNMENT?

Well, you’ve brought my book, and that’s certainly a great sign IMHO, but… In order to receive a contract, a contractor must agree to meet (be responsive to) the government’s requirements. You also must be responsible in that you have provided the resources needed to do the job and, if you’re an established business, have a satisfactory record of integrity and performance.

Depending upon the type of procurement and the circumstances involved, the contracting officer may do a 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, in order 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, and/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 the above 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.

✓      Federal contracting work tends to be a more reliable source of income and is a great hedge against recessions since 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, and each major federal agency provides free assistance to contractors.

✓      In some cases, the government provides financial assistance, such as guaranteed loans.

✓      The government not only actively seeks out small businesses when it buys products and services, but it also formally sets aside opportunities for minority and disadvantaged groups to help encourage participation for all Americans.

✓      For FY2023, the federal discretionary spending budget was approximately $1.7 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 country club.

✓      The government spends approximately 25 cents of every dollar spent in the United States.

✓      Contractors generally do not need a massive product distribution system or a substantial advertising budget.

✓      Numerous regulations govern federal contracting to help ensure fair play by both the government and the contractor. (These regulations do, however, create a certain amount of red tape.)

✓      If you perform the work required by the contract, you will get paid—usually within 30 days. Checks cut by the federal government never bounce!

✓      Federal business programs often lead to business with other federal agencies, as well as with state and local governments.

✓      Many government contracts run for a base year with up to seven option years. So, if you live up to expectations, you can expect to get your contract renewed.

✓      Average government orders/contracts tend to be larger than commercial orders––$10 million to $100 million is not uncommon. And landing even a single contract can significantly boost your bottom line.

✓      Government business tends to complement your commercial business. It’s common for contractors to sell a product to the government and then sell additional versions of the product to government vendors that are required (or choose) to be compatible with the government’s requirements.

✓      In spite of legal changes in recent years, the government awards about 45% to 50% of its contracts to sole-source providers. Contractors, therefore, may be able to locate and bid on federal contracts that have limited competition. 

✓      Contracting with the government is patriotic!!

Considering all the advantages listed above, what businessperson wouldn’t want to contract with the government? But as