One distinctive area of opportunity available to some small business owners is the possibility of working on federal or state government contracts. In an effort to promote business ownership and entrepreneurship in the United States, many government contracts provide for preferential treatment to be given to bids from small business owners who meet certain requirements. If this is an area of interest for your business, it is important to understand how the government contract process works and what you can do to best position your small business.
The Government Contract Process
Government contracting is a highly regulated process that seeks to avoid any implications of impropriety or unfair bidding opportunities. Since it is highly regulated, government contracting is also very complicated. In addition to the brief overview provided here, business owners should contact a government contracts attorney if they are interested in participating in the bidding process.
Government contracting is codified in the Armed Services Procurement Act of 1947, the Federal Property and Administrative Services Act of 1949, and the Competition in Contracting Act. Additionally, the Federal Acquisition Regulation (FAR) provides the policies and procedures that must be followed by all federal agencies during contracting and acquisition.
Contracting can occur through one of two means: sealed bidding or competitive negotiation. Sealed bidding is a more rigid process that requires all interested businesses to submit bids to obtain the contract at issue. The bids are carefully reviewed for a variety of financial and technical factors, and the contract is typically awarded to the most qualified bidder who submits the lowest bid. Conversely, competitive negotiation allows agencies to work more flexibly with potential bidders to discuss bids, adapt offers, and award contracts using a broader list of factors. Each process typically takes anywhere from several months to a year, and it can also involve appeals if a rejected bidder feels that its bid was inaccurately or unfairly considered. Given the immensity of many government contracts, which are sometimes hundreds of millions of dollars, fighting over government contracts can be fierce and prolonged.
Preferences for Small Business Owners
In order to ensure that government contracts support the socioeconomic values of our country, the government imposes several obligations on all federal contracts. First, government contractors are entitled to equal opportunity without regard for race, color, religion, sex, or national origin. Additionally, preference is given to bidders who promote affirmative action within their company, as well as providing opportunities for handicapped individuals and veterans.
Some government contracts are also specifically “set aside” for small businesses. What constitutes a small business depends on the nature of the contract and the services to be performed. For some contracts, small businesses may be required to be 50 employees or less, while larger contracts may allow for businesses with up to 1,000 employees to qualify as small.
The first step in determining whether your small business may qualify for a government contract is to look at the nature of the contract proposal itself. These federal solicitations will specify whether they are set aside for small businesses and, if so, what the size standard is for that particular solicitation. Typically, size standard information is included within the solicitation itself, but otherwise it can be determined by looking on the Small Business Administration’s website.
Once you have determined the size requirements for a small business contract, the next step is to figure out the size of your company according to the federal government’s requirements. Typically, the government evaluates size on either a revenue or employee basis. Revenue size standards are calculated using the average annual income for the company over the past three years. Employee size standards are based on the average number of full-time, part-time, and temporary employees in your business over the past 12 months. When considering revenue or employee size, it is important to note that if your business is affiliated with a larger entity, such as if a larger company owns stock in your business, your size may be calculated on the basis of this “affiliation,” rather than your business size alone.
If your business would appear to qualify for the small business set-aside contract that you are interested in, you can bid on that contract. Doing so typically requires the expertise of an experienced government contracts attorney to ensure that you abide by all the necessary regulations and procedures that govern the acquisition process.