The U.S. Government is the world’s largest customer. That is to say, the Federal Government buys more goods and services than any other entity across the globe, spending around $665bn per year.
Like private sector organizations, the public sector needs goods and services—whether that’s office equipment, vehicles, construction materials or technology. The difference is all government suppliers need to go through a significant procurement process, whether they’re purchasing new office chairs or overhauling a whole department with new technology.
Small businesses face stiff competition to win these lucrative and well-valued contracts, which can provide a steady stream of income that help them fuel growth. The good news is the Federal Government aims to award at least 23% of these contracts to small businesses, with an additional 5% allocated to small businesses with founders from disadvantaged groups.
Yet even though total federal procurement from small businesses is at an all-time high of 26.5%, there remain strict requirements for bidding on government contracts.
Help is available, however. In this article, we’ll explain how to bid on government contracts. We’ll also outline the resources and strategies that small businesses, especially those owned by minority or disadvantaged founders, can use for a better chance of success when bidding for government contracts.
How Does U.S. Government Procurement Work?
Governments regularly award contracts to businesses of varying sizes and the procurement process can operate similarly to large commercial contracts. These contracts include a Statement of Work (SOW) that outlines expectations for the how the work is carried out, delivery dates and other requirements.
The key difference in government buying, also known as ‘public procurement’, is the process of awarding contracts is complex and heavily regulated. Since taxpayer money is at stake, there are many statutes, rules and regulations in place to ensure transparency and prevent corruption.
Getting started, however, is relatively simple. Contracting opportunities are currently announced on government database websites like SAM.gov, SubNet and the Dynamic Small Business Search (DSBS). Bid-matching services from the Procurement Technical Assistance Center are also helpful for small businesses trying to bid for government contracts.
What is SAM.gov?
To sell goods and services to the U.S. Federal Government, all small businesses must first register with the System for Awards Management (SAM) platform, SAM.gov. This is the main database businesses use to find out about government contract opportunities, assistance listings (grants, loans, and other awards) and to locate other resources that could help them succeed with contracts.
One of the challenges small business owners experience with SAM.gov is it’s not the most intuitive platform. As well, some business owners forget to renew and update their SAM.gov account annually with any relevant business information, including business size metrics, financial information and any representations and certifications. Without a renewed account, they will not be considered for contracts.
How To Navigate SAM.gov
Register as an Entity
Before a business can use SAM.gov, it must first register for a Unique Identity ID (UEI), a 12-character code that is used to verify the business’s existence. Once obtained, businesses need to assign their products and services to the North American Industry Classification Systems (NAICS) Code.
Complete the SAM Profile
Small businesses accounts on SAM.gov require the following information:
- Legal business name
- Entity type and information
- The physical location of the business
- Taxpayer Identification Number (TIN)
- Financial and banking information
- Points of Contact (POC)
The SAM profile serves as a résumé and maintaining it is vital to winning government contracts. By accurately describing your small business, including landing what makes you unique for example if you are a veteran or minority founder, you will be more visible to contracting officials in search results.
Further guided step-by-step instructions are available through the U.S. Treasury website.
The awards system is managed by the Integrated Award Environment (IAE) using an ‘innovative design and development approach to improve processes and implement policies for those who make, manage, or receive federal awards’. To stay informed on changes to the platform, businesses can join the GSA Interact community to get regular updates.
What Are The Obstacles to Winning Contracts?
There are a range of factors that can prevent small businesses from winning government contracts, and even discourage them from bidding altogether:
Government contract terms involve an extensive amount of regulatory dictates — vendors must have the right licensing, insurance coverage, and meet regulatory compliance like labor and environmental protection laws.
To meet these requirements, small businesses need either internal or external access to knowledgeable people—not only lawyers, but accounting, compliance and HR experts—who can understand the complexity of contract terms. However, many will simply not have the internal resources for this.
The consequences of non-compliance with specific contract terms are also more severe compared to the private commercial sector. Small businesses who fail to meet the requirement due to lack of information or otherwise may be subject to False Claims Act Litigation.
Lack of Contacts
Many small businesses may believe only established companies with the right connections within government stand a good chance of securing contracts. This can become a self-fulfilling prophecy, as smaller businesses are less likely to pursue bids. But if small business owners follow the guidance out there to make themselves shine on SAM.gov, lacking connections doesn’t need to be a problem.
Lengthy Sales Cycles
Due to their extensive compliance requirements, government contracts are by and large awarded in a much longer timeframe compared to commercial projects. Unlike large, established companies, small businesses with limited experience and short-term levels of capital will be reluctant to pool significant resources and time bidding for a competitive contract it is not sure it will win.
What Support is Available?
The Role of the Small Business Association
Since its creation in 1953, the U.S. government has devoted federal resources to the Small Business Administration (SBA) to assist small businesses. The agency’s primary role is to advise individuals who aim to start and grow their own business.
Within the SBA is the Office of Advocacy, which advances the views and concerns of small business before the White House, Congress, and other policymakers and federal bodies.
To support aspiring and existing entrepreneurs, the SBA website gives guidance and tools on its website. This includes the SBA learning platform, providing education and training for business owners to advance their aims, including winning government contracts.
Federal Support for Government Contracts
As the SBA outlines, contracts can be divided into two types which help create a level playing field for small businesses: set-aside contracts, and contracting assistance programs for small businesses in specific socio-economic categories.
Set-aside contracts help small businesses get ahead in the government procurement process. These are split into competitive set-aside contracts and sole-source set-aside contracts.
Competitive set-aside contracts: If at least two small businesses can execute the work or provide goods for a government need, the contract is set aside exclusively for small businesses but is still a competitive process. As a general rule, this is automatically the case for all contracts valued at less than $150,000.
Sole-source set-aside contracts: When a single business can fulfill the requirements of a government contract, sole-source contracts are issued without a competitive bidding process. Before a business can be considered for a sole-source contract, they need to be registered with SAM.gov and be participating in a contracting program.
Contracting Assistance Programs
Small business owners trying to win government contracts can also get ahead as part of contracting assistance programs. These provide benefits to many different types of businesses, and to different business owners, so it is worth reviewing what is out there:
- 8(a) Business Development: The government aims to award at least 5% of federal contracting funds to minority-owned small businesses. The 8(a) program offers valuable assistance in particular to socially and economically disadvantaged entrepreneurs who have relevant experience. If eligible, they can earn the 8(a) Minority Owned Small Business Certification.
- HUBZone: 3% of all Federal Government contract dollars are allocated for small businesses located in specific communities. This initiative is designed to fuel growth for small businesses in Historically Underutilized Business (HUB) Zones, including Native American Land, rural areas and areas affected by disasters.
- Women-Owned Small Business (WOSBs): The Federal Government also allocates 5% of its annual yearly contracts to female owned small businesses. Female founders also receive preference for government contracts if they’re developing goods and services in industries where WOSBs are underrepresented. Some contracts are also restricted further to give more opportunity to economically disadvantaged women-owned small businesses (EDWOSBs).
- Veteran Small Business Certification (VetCert): Under the VetCert program, service-disabled veterans (those with a disability incurred or aggravated in the line of duty) that own businesses are allowed to compete for sole-source and set-aside contracts. In addition, certified veteran-owned small businesses (VOSBs) may also compete for sole-source and set-aside contracts from the Department of Veterans Affairs (VA).
- SBA Mentor-Protégé Program: This program from the SBA pairs a business with experience landing government contracts (the mentor) with a small business (protégé) to help the latter learn key skills and utilize resources to win government contracts.
More Tips for Winning Small Business Contracts
While the government support systems help to level the playing field for founders from disadvantaged or minority backgrounds, there are further actions small businesses can take to improve competitiveness when bidding for contracts.
For small businesses to pull ahead of competition and increase the overall success rate, they can take advantage of networking opportunities that help build their reputation as a known, credible and trusted potential government partner.
Industry events, conferences and trade shows are all routes to link with government officials and stakeholders, helping to bolster awareness of a small business. These opportunities can also prove instrumental in finding further contracting opportunities and referrals.
When the Federal Government needs contractors to complete a project, it announces it through a Request for Proposal (RFP), to which bidders must submit a response to win the contract.
Many small businesses eager to secure government contracts jump at opportunities without enough prior knowledge of the project itself, or the sector the request is coming from. Thorough market research lets them identify their suitability for the contract, and draft a proposal response that effectively communicates the contractor’s familiarity with the project requirements.
Reliability is a key factor government procurement officials are looking for when assessing the suitability of potential contractors. Ideally, the successful bidder will have previously completed a project that is similar to the contracting job. Officials also use the Contractor Performance Assessment Reporting System (CPARS) to measure the likelihood of a bidder’s future performance.
Bidders can be transparent, but also strategic, when presenting their past performance. Similarities between past and prospective jobs need to be clearly defined, for example, in terms of technical requirements. If there were any performance issues with past projects, address them upfront — this will not demonstrate lack of skill, but a willingness and ability to learn and grow.
Flexible Financing for Government Contractors
Winning a government contract comes with big responsibility and requires significant investment. Ambitious SMBs may encounter difficulties fulfilling contracts because of a lack of working capital available to pay for a significant order from suppliers. If an initial order turns into a recurring contract, businesses may also find themselves needing to quickly scale their operations.
Setscale offers flexible PO financing solutions allowing businesses to fund big orders once they have received a PO, enabling them to grow capacity and meet demand for valuable contracting opportunities. We’ve supported multiple businesses with their government contracts, including many of founders from disadvantaged or minority backgrounds. Find out more about how we can help you with government contracts, or fill in a request form to get started.