This is a frequently asked question for businesses in Washington, D.C., and its surrounding states of Virginia, Maryland and West Virginia. Yes, there are many rules and regulations which govern selling to or providing services to the U.S. Government, but with the help of qualified professionals and industry wide colleagues, they are manageable.
The government has programs in place to actively seek out small business participation in its acquisition of goods and services. As a small business, you can typically find out how much they have historically paid for the same product or service, who they bought it from and how frequently they bought it. This type of information is not as readily available on the commercial side from your potential customers.
There are similarities in selling to the government:
- A sales person must convince the purchaser that their solution is the best.
- There are ‘acceptable’ methods for doing business commercially, as well as with the government.
And there are differences:
- The government is trying to find the best use of taxpayer money, not satisfy stockholders
- Businesses strive to create profit for a small group of people, while the government generates its own revenues from taxes and fees
- Some government contracts give them the right to audit your work
- You need to maintain detailed accurate records, or face price adjustments or potential penalties under the terms of your government contract
- The contract agreement between a contractor and the commercial purchaser states what is required of the contractor
- Contract terms can be changed
- The government can terminate a contract for the ‘convenience of the government’
- The government can change its purchase orders, delivery orders and contract during the course of a contract
- Government contractors typically have to accept the contract terms mandated by the government or leave the contract, whereas commercial purchasers frequently negotiate various contract terms with the supplier
- Businesses must register in a free database known as SAM (System for Award Management) to be eligible for a government contract award
- Other Compliance Requirements
- Some contracts may call for stratification of your workforce across certain demographic and social guidelines
- Some contracts may limit the amount of ‘profit’ you can earn
- The U.S. Government provides procurement set-asides for some types of businesses, such as Small Business, Woman-Owned Small Business, HubZone Small Business, and Service Disabled Veteran Owned Small Business
Don’t Give Up!
Many smaller organizations lack the human capital or ability to perform proper ‘capture planning’. Consequently, they fail in their ability to identify opportunities and write the proposal in response to the solicitation. If you have not been successful bidding on a contract as a prime contractor, you should remain open to the opportunities existing for sub-contractors in today’s marketplace. Your contractual agreement would be directly with the prime contractor, not the government. It has been estimated that somewhere between 50-80% of all procurement dollars are spent on Subs.
Why do Prime contractors subcontract?
- Contract requirement
- Increased exposure into a new marketplace
- Strategic alliances or partnerships to mitigate risk
Prime contractors typically have strong leadership, stratified project coordinators and they actively seek sub-contractors who can provide the services they need to accomplish specific tasks within their contract requirements. In fact, many of their contracts require a certain portion of such to be awarded to small businesses or businesses meeting specific criteria for Underutilized Business Zone (HUBZone), women-owned or service-disabled veteran-owned status. This creates an ongoing need for subcontractors and you can position your company to take advantage of these opportunities.
If you are already a subcontractor, or plan to be, please be sure to seek legal counsel and read your contract in its entirety. Pay attention to the terms of the contract, not just the services to be provided and payment terms, but also reporting requirements, defining performance or non-performance, and how any disputes may be addressed and resolved.
Think of your teaming opportunities with that next prime or subcontractor and how you could potentially be ready to evaluate your chances of success. If you would like to discuss your current or future opportunities, please contact YHB (Yount, Hyde & Barbour, P.C.) Principal Tom Moler at tom.moler@yhbcpa.com or 703-777-7739.
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About the Author
As a principal of the firm in its Leesburg office, Tom specializes in providing accounting, tax and business consulting to closely held companies, corporations, partnerships and limited liability companies. He champions our Professional Services Firm niche and our Government Contracting niche. He is a past Chairman and currently serves on the board of directors, executive and GovCon committee of the Loudoun County Chamber of Commerce.
