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Defining the Market

The U.S. government is the world's largest buyer of products and services. Purchases by military and civilian installations amount to nearly $200 billion a year, and include everything from complex space vehicles to janitorial services and cancer research. In short, the government buys just about every category of commodity and service available.

By law, federal agencies are required to establish contracting goals, such that 23% of all government buys are intended to go to small businesses. In addition, contract goals are established for women-owned businesses, small disadvantaged businesses, firms located in HUBZones and service disabled veteran-owned businesses. These government-wide goals, which are not always achieved, are 5%, 5%, 3% and 3%, respectively. They are important, however, because federal agencies have a statutory obligation to reach-out and consider small businesses for procurement opportunities. It is up to you to market and match your business products and services to the buying needs of federal agencies.

Selling to the Federal government is, in some ways, similar to selling to the private sector. While federal procurement procedures may have a different set of rules and regulations, many of the same marketing techniques and strategies you already employ may work here. Use your common business sense. Some tips: Get to know the agency and understand the context in which your product or service could be used.

Obtain available information on past awards, quantities, costs and awarders. Become known to potential purchasers. Before going forward, take a moment to think about your company's products and services. Take a close look at your company and consider what the government will look for when considering your company for a contract award. Financial status, staff capabilities and track record are all of interest to the government.

How the SBA can help

The SBA's mission is to stimulate and foster economic development by helping new businesses get started and established firms grow. While small businesses often face considerable hurdles when trying to win federal contracts, the SBA can help overcome these barriers. The SBA works closely with other federal agencies and the nation's leading federal contractors to ensure that small businesses obtain a fair share of government contracts and subcontracts.

How the government buys

The government buys many of the products and services it needs from suppliers who meet certain qualifications. It applies standardized procedures by which to purchase goods and services. That is, the government does not purchase items or services in the way an individual household might. Instead, government contracting officials use procedures that conform to the Federal Acquisition Regulation (FAR).

The FAR is a standardized set of regulations used by all federal agencies in making purchases. It provides procedures for every step in the procurement process, from the time someone in the government discovers a need for a product or service to the time the purchase is complete.

The FAR can be accessed electronically at

As of October 1, 2001, the government transitioned from Commerce Business Daily (CBD) to Federal Business Opportunities (FedBizOpps) to "post" all procurement opportunities expected to exceed $25,000. FedBizOpps is a web-based application and is the government-wide point of entry to communicate its buying requirements to potential suppliers. This very important website can be accessed at FedBizOpps.

When the government wants to purchase a certain product or service, it can use a variety of contracting methods. Simplified acquisition procedures, sealed bidding, contracting by negotiation and consolidated purchasing vehicles are key contract methodologies used to purchase products and services.

Contracting Methods

Simplified procedures

The Federal Acquisition Streamlining Act (FASA) of 1994 is intended to simplify government buying procedures. It removed many competition restrictions on government purchases of less than $100,000. Instead of full and open competition, agencies can now use simplified procedures for soliciting and evaluating bids up to $100,000. Government agencies, however, are still required to advertise all planned purchases over $25,000 in

Simplified procedures require fewer administrative details, lower approval levels, and less documentation. New procurement reform legislation requires all federal purchases above $2,500 but under $100,000 to be reserved for small businesses, unless the contracting officer cannot obtain offers from two or more small businesses that are competitive on price, quality and delivery.

Government purchases of up to $2,500 in individual items or multiple items whose aggregate amount does not exceed $2,500 are now classified as "micro-purchases" and can be made without obtaining competitive quotes. However, these purchases are no longer reserved for small businesses. Agencies can make micro-purchases using a Government Purchase Card (typical credit card).

Sealed bidding

Sealed bidding is how the government contracts competitively when its requirements are clear, accurate and complete. An Invitation For Bid (IFB) is the method used for the sealed bid process. Typically, an IFB includes a description of the product or service to be acquired, instructions for preparing a bid, the conditions for purchase, packaging, delivery, shipping and payment, contract clauses to be included and the deadline for submitting bids. Each sealed bid is opened in public at the purchasing office at the time designated in the invitation. All bids are read aloud and recorded. A contract is then awarded by the agency to the low bidder who is determined to be responsive to the government's needs. Government-wide IFBs are available daily for review at FedBizOpps. This electronic government service also provides a direct link to the invitation. Contracting officials search the Central Contractor Registration to identify qualified small business contractors. Therefore, any small business that wants to sell to the government should be registered on CCR.

Contract negotiation

In certain cases, when the value of a government contract exceeds $100,000 and when it necessitates a highly technical product or service, the government may issue a Request for Proposal (RFP). In a typical RFP, the government will request a product or service it needs and solicit proposals from prospective contractors on how they intend to carry out that request, and at what price. Proposals in response to an RFP can be subject to negotiation after they have been submitted.

When the government is merely checking into the possibility of acquiring a product or service, it may issue a Request for Quotation (RFQ). A response to an RFQ by a prospective contractor is not considered an offer, and consequently, cannot be accepted by the government to form a binding contract. The order is an offer by the government to the supplier to buy certain supplies or services upon specified terms and conditions. A contract is established when a supplier accepts the offer.

Government-wide RFPs and RFQs are available daily for review at FedBizOpps. This electronic government service also provides a direct link to the request. In most instances, the government uses oral solicitations for purchases less than $25,000, written solicitations for purchases over $25,000, and purchase cards to obtain micro-purchases less than $2,500.

One of the most significant changes in government acquisition reform is the increased importance of "best value." Best value means that, rather than making awards to the lowest bidder as it generally did in the past, the government can now make awards for the item that best satisfies its needs at a slightly higher price. If purchasers are going to make an award based on best value, they must state their intent in the solicitation document and include a description of the evaluation criteria, award factors, and factors other than the price that will be considered in making a contract award.

Contracting officials search the Central Contractor Registration to identify qualified small business contractors. Therefore, any small business that wants to sell to the government should be registered on CCR.

Consolidated purchasing programs

Most government agencies have common purchasing needs: carpeting, furniture, office machine maintenance, petroleum products and perishable food supplies are just a few examples.

Sometimes the government can realize economies of scale by centralizing the purchasing of certain types of products or services.

Procurement reform has ushered in numerous new and/or modified acquisition vehicles-multiple award contracts-such as multi-agency contracts and government-wide acquisition contracts (GWACs). These vehicles encourage long-term vendor agreements with fewer vendors. The use of these contract vehicles, including expanded use of GSA Schedules has increased significantly during the last few years. These popular vehicles allow government buyers to quickly fill requirements by issuing orders against existing contracts or schedules without starting a new procurement action from scratch. Furthermore, agencies can competitively award several or multiple task order contracts to different firms for the same products and services. This practice allows federal buyers to issue orders to any one or combination of several firms with relative ease.

The three largest inter-agency consolidated purchasing programs are administered by the General Services Administration, the Defense Logistics Agency, and the Department of Veterans Affairs.

Contractor responsibilities

Knowing what and how the government buys is essential if a business owner is to be successful in government contracting. Don't think, however, that you can relax once you receive the good news that you have won a contract. Your work is just beginning. If you cannot perform according to the terms of the contract, the government will not get the product or service it needs and you may find yourself in financial difficulty as well.

The first thing to do is to read the proposed contract carefully before signing it. This may look like an imposing task, as some contracts may contain many pages depending on the type of contract and complexity of what the government is buying. However, many contract terms and conditions are "boiler plate." Once you read and understand the terms, you will be familiar with them when they appear in your next contract.

One important feature of the contract is the identity of the office that will administer it. In most federal agencies this is usually the same office that awarded the contract. In the Department of Defense, however, the contract is generally assigned to a special administering office. If you have any questions about the contract, contact the office of administration. Do not proceed and find out much later that you are not in compliance.

Specific contract administration matters

While federal contracts are similar to commercial contracts, they are different in some very important ways. They contain or make reference to many general contract provisions unique to the government.

These provisions implement various statutory or regulatory requirements applicable solely to federal contracts. Some of the important matters covered by these provisions are termination for default, termination for convenience, contract changes, payments, specifications, and inspection and testing. These matters are described in various parts of the Federal Acquisition Regulations. The SBA's Office of Government Contracting can assist you in understanding these FAR provisions.

Termination for default

Government contracts provide that the government may cancel (terminate) your contract if:

  • You fail to make delivery within the time specified in the contract;
  • You fail to make progress so as to endanger performance of the contract;
  • You fail to perform any provisions of the contract.

Before terminating a contract for default, the contracting officer must, however, give you an opportunity to remedy defects in your performance or show why your contract should not be terminated.

If your contract is terminated for default, you are entitled only to payment at the contract's price for items accepted by the government. If the government still needs the items that you failed to deliver, it has the right to procure the same items elsewhere and, if they cost more, charge the excess costs to you. This can be a very serious and costly matter.

If you can show that your failure to deliver or to make progress is excusable, your contract will not be terminated for default. To be excusable, a delay must be beyond your control and not caused by your fault or negligence. If your contract is terminated for default and you can prove that the government's action was improper, the termination will be treated as one for the "convenience of the government".

Termination for convenience

The government may unilaterally terminate all or part of a contract for its convenience. This type of termination does not arise from any fault on the part of the contractor. Termination for convenience protects the government's interests by allowing it to cancel contracts for products that become obsolete or unnecessary.

As with terminations for default, the government must give you written notice of termination for convenience, but is not required to give advance notice. The notice of termination will usually direct you to:

  • Stop work;
  • Terminate subcontracts;
  • Place no further orders;
  • Communicate similar instructions to subcontractors and suppliers;
  • Prepare a termination settlement claim.

If you fail to follow these directions, you do so at your own risk and expense. You should also receive detailed instructions as to the protection and preservation of all property that is or may become government-owned.

After termination for convenience, the government will make a settlement with you to compensate you fully and fairly for the work you have done and any preparation made for the terminated portion of the contract. A reasonable allowance for profit is also included.

Contract changes

Because the government's needs change from time to time, government contracts contain a clause authorizing the contracting officer to unilaterally order changes in the specifications and other contract terms. The changes must be "within the general scope of the contract." The contractor is obliged to perform the contract as unilaterally changed by the contracting officer. A change is within the scope of the contract if it can be regarded as within the contemplation of the parties at the time the contract was entered into. The government cannot use a change order to change the general nature of the contract. The contractor is entitled to an equitable adjustment in price and delivery schedule if changes are ordered.


The obligation to make prompt payments for products delivered or services rendered is, generally speaking, the primary obligation of the government on a procurement contract. Payment is naturally of utmost importance to the small business. Your contract will specify the government office responsible for payment and will contain invoicing instructions. The more accurate your invoices, the more quickly you will be paid, so it is important to understand the payment process thoroughly. Prompt payment on all contracts serves the best interest of both the contractor and the government. Under certain circumstances if the government does not accomplish prompt payment, you can submit a request for interest payments. (Reference: Public Law 97-177, Prompt Payment Act.)

Under fixed-price contracts, the method of payment can vary with the dollar value of the contract. For relatively small contracts with a single item of work, you will generally be paid the total contract price in one lump sum. Payment is made after the government accepts delivery. For larger contracts with many items, you can invoice and receive partial payments. For example, in a contract for 120 units with a delivery rate of 10 per month, you can invoice each month for the price of delivered (and accepted) items. Larger fixed-price contracts and subcontracts where the first delivery is several months after award, may contain a clause permitting you to receive progress payments based upon costs incurred as work progresses.

Because progress payments are based on work that is not completed, you must repay them if you fail to complete the work. To protect its interest, the government takes title to your work-in-process for which progress payments have been made. To qualify for progress payments, you must have an accounting system that can accurately identify and segregate contract costs.


The Federal government has exact specifications for most of the products and services it buys on a regular basis. In all likelihood, your contract will contain such precise specifications. In fact, the specifications-which describe the government's requirements-were contained in the invitation for bids or request for proposals on which you based your bid or proposal.

Once an award is made to your company, you are contractually bound to deliver the product or service described in the specifications. Sometimes, the basic specifications will make reference to and incorporate other federal specifications. You are of course bound by the terms of these specifications, as well as the basic specifications. Failure to deliver a product meeting these terms may result in termination of your contract for default.

Accordingly, as mentioned previously, never bid on a contract unless you have read and understood all of the specifications. Also, read the specifications again before you start work under the contract.

Inspection and testing

Government contracts provide that the government may inspect and test the items you deliver to determine if they conform to contract requirements and specifications. The government will not accept a contractor's product unless it passes inspection. The type and extent of inspection and testing depend largely on what is being procured.

Special recommendations and advice

In addition to knowing the item you are manufacturing or the service you are providing, you should have a working knowledge of government contracting procedures, some of which are explained in this publication. You should also be aware of the following:

  • As you have learned, the government conducts its business through authorized agents called contracting officers. Only a contracting officer has authority to bind the government, unless you are otherwise advised in writing. However, even contracting officers have limits on their authority, so do not hesitate to make sure of the authority of the person with whom you are dealing.
  • Government procurement has historically been used as a vehicle for advancing various national, social and economic objectives. As a government contractor, you will be required to comply with the labor standards statutes (Service Contract Act, Contract Work Hours and Safety Standards Act, etc.) and other statutes advancing national socio-economic objectives, except for certain contracts where such legislation is specifically stated as non-applicable.
  • You should become familiar with the contract provisions protecting the integrity of the government procurement process. These provisions include the "officials not to benefit" clause, the "anti-kickback" provisions, the "gratuities" clause, etc.
  • Disputes between you and the contracting officer may occur under the contract. Federal contracts contain a clause setting forth procedures to resolve disputes. If the contracting officer issues a decision that is not satisfactory to you, you must make a timely appeal or the decision becomes final. Appeals are heard by the Board of Contracts Appeal.
  • Do not attempt to build something bigger, better or different than called for by the contract. If you do, it may be too big or too heavy or may not fit and the government will not accept it. Simply comply with the contract terms, particularly the specifications.
  • If your contract requires production, establish a production control schedule to assure that you will have the right materials in-house at the right time to meet delivery requirements. Make sure to place any subcontracts promptly and schedule delivery of subcontracted items carefully to avoid over-or-under stocking. If it appears you will not meet your schedule, notify the administration office immediately to obtain assistance. Failure to deliver on time gives the government the right to cancel your contract, with possibly disastrous results to you.
  • One of the first things that must be done by a small business is to market to the Federal government. The best ways to start include registering on SBA's PRO-Net database and contracting the agency's office of small and disadvantaged business utilization (OSDBU).
  • Being eCommerce savvy is very important in doing business with the Federal government. For example, if you want to do business with the Department of Defense, you must be able to invoice and receive payments electronically. Therefore, small business owners interested in doing business with the Federal government should master electronic commerce.

Identifying your business

Clearly defining your business is important for accurate representation of your firm when submitting contract proposals. In addition, such identification can serve as a marketing strategy. Government agencies are required to establish and (strive to) meet a variety of small business procurement goals. For example, an agency may be looking for a woman-owned business to fulfill specific contract requirements and help it achieve a government-wide, 5% goal of contracting with women-owned small businesses.

Are you a small business?

SBA defines what a small business is. Small business size standards are based on the North American Industry Classification System (NAICS). Determine if you can be classified as a small business.

Are you a woman-owned business?

A woman-owned business is defined as a business that is owned and controlled 51% or more by a woman or women. Currently, a woman-owned certification process is not required for federal contracts. When submitting a proposal, simply self-certify by checking the appropriate box.
Learn more about this.

Are you a veteran-owned business?

A veteran-owned business is defined as a business that is owned 51% by a veteran(s). There is no veteran-owned certification process to complete, simply self-certify.

Are you a service-disabled veteran-owned business?

A service-disabled business is defined as a business that is owned 51% by one or more service-disabled veterans. The Veterans Administration confirms disability.
Learn more about this.

Are you a small disadvantaged business? (SDB)

A small disadvantaged business is defined as a firm that is 51% or more owned, controlled and operated by a person(s) who is socially and economically disadvantaged. African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans are presumed to qualify. Other individuals can qualify if they show by a "preponderance of the evidence" that they are disadvantaged.
Learn more about this.

Are you a HUBZone business?

The Small Business Administration's HUBZone Program is designed to promote economic development and employment growth in distressed areas by providing access to more federal contracting opportunities. HUBZone is defined as a "Historically Underutilized Business Zone". Certified small business firms will have the opportunity to negotiate contracts and to participate in restricted competition limited to HUBZone firms. To determine if your business is located in a HUBZone, or to apply online, click here.

North American Industry Classification System (NAICS)

The SIC will be replaced by the six-digit North American Industry Classification System (NAICS) code. The new NAICS system was developed to reorganize business categories on a production/process-oriented basis. The purpose behind the creation of the NAICS classification system is specifically for governmental regulations and census reports. To determine your NAICS code, click here.

Federal Supply Classification (FSC) - identifies products

The Federal government uses numeric federal supply class (FSC) codes to describe the supplies, products and commodities it purchases.
Product and Service Codes.

Subcontracting Opportunities

Subcontracting or teaming with a prime contractor can be a profitable experience as well as a growth opportunity for your business. If, after assessing the capabilities and capacity of your business, you conclude that you are not ready to bid competitively for prime contracts, consider the opportunities available through subcontracting. The experience gained from performing as a subcontractor can assist you in responding to solicitations as a prime contractor. Subcontracting, however, should not be viewed only as an opportunity for less-experienced business, but also as a vehicle to enhance your qualifications to become more competitive to perform as a prime contractor.

Over the years, several laws have been passed regarding subcontracting to small business. All of these are now incorporated into Section 8(d) of the Small Business Act and, in most cases, FAR 19.7. These laws require prime contractors having contracts that exceed the simplified acquisition threshold (SAT) to provide maximum practicable subcontracting opportunities to small business, HUBZone small business, small disadvantaged business, women-owned small business, veteran-owned small business (VOSB), and service-disabled VOSB. The clause "Utilization of Small Business Concerns," must be included in all federal contracts exceeding the SAT.

These laws, among other things, require that:

  • On contracts over $500,000 (or $1,000,000 for construction of a public facility), large prime contractors and other-than-small subcontractors submit subcontracting plans containing specific percentage goals for small business, HUBZone small business, small disadvantaged business, women-owned small business, VOSB and service-disabled VOSB.
  • Subcontracting plans must contain a description of the methods and efforts used to assure that small business enterprises have an equitable opportunity to compete for subcontracts.
  • Subcontracting plans must be submitted by contractors for review prior to the award of any contract; failure to comply in good faith with its approved plan may subject the contractor to liquidated damages or termination for default.

The requirement to submit a subcontracting plan does not apply to:

  • Small businesses;
  • Contracts under the prescribed dollar amounts;
  • Prime contracts not offering subcontracting possibilities;
  • Contracts to be performed entirely outside the United States.


As a small business engaged in subcontracting, be sure you understand the terms and conditions of your contract with the prime contractor before agreeing to serve as a subcontractor. Ask:

  • How and when will I receive compensation from the prime contractor?
  • How much can I rely on the prime contractor for special tools, engineering advice, information on manufacturing methods, etc.?
  • How will quality control and inspection procedures be applied to my subcontract?

Find subcontracting opportunities


Procurement opportunities

The Federal government purchases billions of dollars in goods and services each year that range from paper clips to complex space vehicles. To ensure that small businesses get their fair share, statutory goals have been established for federal executive agencies. They are:

  • 23 percent of prime contracts for small businesses;
  • 5 percent of prime and subcontracts for small disadvantaged businesses;
  • 5 percent of prime and subcontracts for women-owned small businesses;
  • 3 percent of prime contracts for HUBZone small businesses;
  • 3 percent of prime and subcontracts for service-disabled veteran-owned small businesses.

In addition to the goals established, the Small Business Act 15(g)(1) also states that it is the policy of the United States, that each agency shall have an annual goal that represents, for that agency, the maximum practicable opportunity for small business concerns, small business concerns owned and controlled by service disabled veterans, qualified HUBZone small business concerns, small business concerns owned and operated by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women, to participate in the performance of contracts let by that agency.

Goaling process

The role of the Small Business Administration (SBA)

SBA's responsibility under the Small Business Act 15(g)(1) is to ensure that the Government-wide goal for participation of small business concerns be established at not less than the statutory levels annually and to report the agencies' achievements relative to the goals of the President.

Negotiating and establishing goals

To fulfill this responsibility, SBA negotiates goals with the federal agencies to establish individual agency goals such that in the aggregate , the Government-wide goals are established. In addition to the statutory goals, as a matter of policy, SBA also negotiates a small business subcontracting goal based on the recent achievement levels and a HUBZone (HZ) subcontracting goal equivalent to the required prime HZ goal, and recommends that the agencies' SDB goal be comprised of half 8(a) awards and half non-8(a) awards. Before the beginning of the fiscal year, agencies submit proposed goals to SBA. SBA's Office of Government Contracting determines if these individual agency goals, in the aggregate, meet or exceed the government-wide statutorily mandated goals in each small business category. When that is achieved, SBA notifies the agencies of the final goals.

Monitoring achievements towards goals

The SBA uses the procurement data in the Federal Procurement Data System (FPDS) to monitor agencies' achievements against goals. The FPDS is the official federal procurement data source. Agencies report each award over $25,000 separately with details about that award, such as industry, place of performance, type of contractor, and if the contractor meets SBA's size standards and amount. Awards under $25,000 are also reported, but in summary form that does not include specific details about each small purchase. The agencies' prime contractors, who win awards over $500,000 ($1 million if construction) also report on their subcontracting to small business by goal category. SBA monitors the agencies' performance throughout the year using the FPDS data and compares the agencies' achievements with its goals.

Reporting achievements and goals

When the mid-year data are available, SBA reports to each major federal procurement agency on their progress towards goals for that fiscal year. Annually, SBA prepares a report for the President, government-wide and by agency. That report is also published in the Office of Advocacy's State of Small Business . Achievements and goals are posted on SBA's web site at

More information

SBA policies and procedures for implementing the statutory small business goals are presented in the Goaling Guidelines. The Guidelines in effect in prior fiscal years are available under that year's website where the goals and achievements are posted. The current Guidelines are posted on under the Methodology for Establishing Goals button. The website to contact Government Contracting Goaling Office is

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Popular terms (Glossary)

Contract Award: Occurs when the contracting officer has signed and distributed the contract to, or notified the contractor.

Commerce Business Daily: A Department of Commerce publication used by federal agencies to publish a summary or synopsis of their upcoming procurements to notify interested businesses. Now largely replaced by the Fedbizopps internet site.

RFP - Request for Proposal: A process where an agency or government can seek a specific proposal from vendors. Follows a specifications process and formalized set of standards and procedures. Generally seeks less vendor input than an RFI but more than an RFQ.

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