In the search for better small business funding and new customer opportunities, there’s a source of new revenue opportunities that far too few small business owners recognize: the U.S. government. The federal government is a huge organizational entity—and just like any other business, they need to purchase goods and services to function effectively. Through government contracts for small businesses, you just might become one of those suppliers.
Everything from military vehicles and equipment to paper clips and Post-its are routinely contracted by the federal government to businesses of every size. If you sell to businesses or nonprofit organizations, there’s a good chance you could market your services to government agencies, as well.
Yet despite these opportunities, even small business owners who are aware of government contracting opportunities find a multitude of reasons to avoid seeking government contracts—not the least of which is that they find the process intimidating.
Here, we’ll tell you why you should put your fears aside and consider government contracts for small businesses. Then, we’ll show you how to find government contracts for bid and how to put together your application so you have the best possible chance of winning that bid and the business.
There are a lot of good reasons to seek government contracts for small businesses, and business owners who ignore these opportunities are surely missing out.
Let’s take a look at just a few of the reasons that your small business should actively pursue government contracting opportunities as part of your customer development strategy:
With an annual contracting marketplace of between $350 billion and $500 billion, the U.S. federal government is the world’s largest buyer of products and services. Ignoring the contracting opportunities available through the federal government means effectively writing off the single largest avenue for finding new customers.
Of the approximately $500 billion that the U.S. government spends annually on federal contracts, it’s also their goal to allocate 23% of those funds to small businesses. Now, that might not sound like a huge figure—but in what other bidding scenarios do you have any sort of guarantee that the prospect will choose a small firm like yours over a much bigger company? In private industry, that’s virtually unheard of.
What’s more, through the Federal Procurement Data System, you actually have the ability to identify government agencies that aren’t yet meeting that 23% target. If you respond to a request for a proposal from an agency in this circumstance, you’re almost guaranteed preferential consideration over non-small business firms.
Think about the last proposal or bid you sent to a prospective customer. When preparing that bid and setting your rates, how helpful would it have been to know exactly what the customer was looking for and how much they were prepared to spend? It would be a game-changer. Yet when you’re bidding on government contracts for small businesses, this dream can be a reality every single time.
Federal agencies are required by law to create written budgets annually, detailing exactly what they intend to purchase and the funds they have allocated for those purchases. And the best news for business owners? Those budgets are available in the public domain through the Office of Management and Budget (OMB) website. If you’re willing to dig in and do some research, you can get the inside scoop on your prospective customer’s strategy and goals for the contract you’re proposing as you prepare your bid.
Now that you’ve been convinced of the value of government contracts for small business, let’s talk about how to get started with government contracting. As you may have assumed, a few extra steps are involved in qualifying to serve as a contracted vendor for the U.S. government, and that includes registering in what’s called the System for Award Management.
Here’s how to register:
For each physical location of your business, you need to obtain a Dun & Bradstreet DUNS Number before proceeding with registration for government contracts. You can obtain a DUNS Number for free using the online DUNS Request Service.
Most businesses also need a North American Industry Classification System (NAICS) code, which classifies your business’s industry, country, and economic sector for purposes of government contracting. This code is needed in order to register your business.
Consult the Small Business Administration (SBA) for guidance on identifying your industry code, keeping in mind that if your business operates across multiple industries or sectors, you might need to report multiple NAICS codes.
You might assume that determining your business’s size doesn’t require much thought. However, for the purposes of qualifying for government contracts for small businesses, you need to qualify according to SBA size standards.
To help you easily answer this question, the SBA offers a Size Standards Tool, which uses your NAICS number along with some basic information about your business to determine whether it qualifies as an SBA-designated small business.
The System for Award Management (SAM) is a database of companies that are interested in government contracts, maintained by the U.S. government. Whereas a business customer in the private sector might come across your business on Google, LinkedIn, or some other search or social network, decision-makers at government agencies use SAM to identify potential vendors.
For this reason, small businesses looking to obtain government contracts should invest a similar level of effort into creating a compelling and search-friendly SAM profile as they would spend on SEO strategy or your company’s LinkedIn profile.
To get started, your business will need to register as a government vendor in the SAM system. While your SAM profile must be updated at least once a year to remain active, firms committed to obtaining government contracts should update and refine their SAM profile at least quarterly, if not monthly or more.
Remember that although you’re pitching to government agencies, the decision-makers within those agencies are real people. Avoid the temptation to fall into overly technical and bureaucratic descriptions of your products or services. Working with a government agency doesn’t require stifling the personality behind your brand!
If you’re new to seeking government contracts for bid, it may be worthwhile—though not always required—to obtain an Open Ratings Inc. Past Performance Evaluation. Performed by a private sector of the Dun & Bradstreet Co., this independent auditing and rating system analyzes survey responses from your past customers to calculate a numerical rating of your past performance.
Beyond registering on SAMS, there are steps you can take to identify government contracting opportunities that would be a fit for your company’s products or services.
Here are the primary means you can use to find government contracts for bid:
SAM.gov is your go-to government contracts website to search all open opportunities for contracts valued at $25,000 or more. You can also view previously awarded contracts, which may help you with preparing future proposals.
While the SAM.gov database handles direct contracts with government agencies—known in government terms as prime contracts—there is another form of government contracts for small businesses to explore: subcontracting.
As the name suggests, subcontracting opportunities involve negotiating contracts with current government contractors to complete a portion of the work designated by the prime contractors. In other words, subcontractors are the vendor’s vendor. Subcontracting on government contracts can be both a lucrative business opportunity and a chance to learn more about government contracting before attempting to bid on prime contracts directly with the U.S. government.
Similar to SAM.gov, the SBA maintains a searchable database called SUB-Net that highlights available subcontracting opportunities. If you’re just getting started with government contracting or would like a layer of experience between government agency clientele and your own business, searching SUB-Net for subcontracting opportunities is a great starting point.
If you’re in a very specific industry or know exactly which government agency your small business is most suited to contract with, you can market your firm directly to either targeted agencies or prime contractors. To do this, you would use SAM.gov and SUB-Net to identify existing procurement needs. Then, you can communicate directly to those agencies why your company is the right choice to fill that.
Opportunities to connect with agency decision-makers are available through procurement conferences, industry events, and even contract matchmaking events.
Even if an agency doesn’t have a current contract opening, taking advantage of direct marketing opportunities will help your business establish its name among the government contracting community as a key “contract player” in your line of work. Check out the website for your local SBA district office to find trainings and events in your community that involve your target agencies.
For small businesses with more generalized offerings that are unsure of their ideal government agency fit, subscribing to a bid-matching service can be a useful means for finding government contracts. Most local Procurement Technical Assistance Centers offer free bid-matching services, but you can also retain private and more customized services at a reasonable cost. Working with a bid-matching service also offers the added benefit of connecting you to experienced government contracting mentors who can help guide you through the proposal and procurement process.
Though you likely have experience creating proposals and scope of work orders for prospective clients in the private sector, little can prepare you for the unique process of preparing a government contract proposal. In fact, completing a bid or proposal for a government agency may be more akin to completing your business taxes or a stack of forms for the DMV.
Even so, there are plenty of opportunities to share your unique value add and let your business shine within the pages of your proposal—as long as you fit within the confines of agency formats and expectations.
There are a few different avenues that government agencies use to request proposals from potential government contractors, and as you may have come to expect, each comes with its own jargony acronym and paperwork rundown. But the type of solicitation used for a particular contract tells you a lot about what the agency expects from your proposal, so it’s important to understand the difference.
Following are the main three solicitation types you’re most likely to see on SAM.gov or any other listing of government contracting opportunities:
A request for quotation is the simplified acquisition procedure for government agencies typically used for contracts under $150,000. However, while this is considered simplified by government standards, you may still find it more involved than other scope of work proposals your business has completed for private entities. Consult the SAM.gov database to view past RFQ proposals to better understand how an RFQ should be successfully completed for a business in your industry.
Requests for proposal apply to larger negotiated acquisitions, meaning they allow for some back and forth between the government agency and the prospective vendor to settle upon mutually agreed pricing and terms.
The process starts when a government agency issues an RFP describing the requirements of the contract, anticipated terms and conditions, and the information needed from applicants as part of the proposal. Complete and accurate information is key to responding to a request for proposal, so if you have any confusion about how to respond to certain provisions within an RFP, ask the contracting officer for clarification before submitting your proposal.
Invitations for bid refer to sealed solicitation processes for government procurement, meaning there is no negotiation between agency and vendor. The submitted bid package is considered final, and price point is most often seen as the key differentiator between qualified bidders.
Because of the sealed and final nature of the bidding process, responding to an IFB may be the case in which you’ll want to be most cautious in completing your documentation and setting your prices the first time. There won’t be an opportunity for any discussion or amendment, so if you overshoot the bid or leave out key information, the agency will almost certainly reject your bid in favor of another candidate.
No matter the type, all solicitations share the expectation that aspiring contractors follow a specific format. Success in procuring government contracts has as much to do with your ability to follow instructions in the proposal formatting and submission process as the substance of your proposal. So, make sure that you follow all schedules and forms within the solicitation in the exact order, structure, and time frame requested.
The SBA’s free “Government Contracting 101” online course is a great resource for in-depth understanding of the purpose, forms, and expectations for each of the 10 sections within the Uniform Contract Format.
Federal contracting officers are expected to ensure that supplies and services for government agencies are purchased at fair and reasonable prices, and they conduct a significant amount of market research to understand typical pricing before making a proposal solicitation. At the same time, most solicitations are met with a competitive number of bids, leaving you as the business owner tasked with issuing a competitive bid while still reasonably maximizing your profit potential.
As you can imagine, setting your contract pricing well will be critical to your ability to win profitable government contracts. You need to consider your costs both during bidding and the fulfillment of the contract while allowing enough room for day-to-day overhead.
Remember as you bid that contracting officers aren’t necessarily seeking the lowest price, but rather the best value with all factors considered. Look for ways to add value in your bid without increasing overhead costs to maximize your company’s appeal as the “best value” offer.
We hope this has been a useful primer on how to obtain government contracts for small business, but there’s certainly more to be learned within this expansive and complex industry. Fortunately, the SBA and other federal agencies have gone to great lengths to provide valuable resources for small business owners interested in federal contracts. Here are a few of the most useful resources we recommend.
Small, minority-owned, or otherwise disadvantaged businesses may benefit from participating in the SBA 8(a) program—a business development and mentor program that, among other benefits, provides training and resources to help participating businesses compete in the federal contracting marketplace.
Do you want to develop a more in-depth understanding of government contracting before diving into the federal marketplace? The SBA Government Contracting Classroom is a wonderful online course series that thoroughly explains what you need to know about government contracts for small business. These courses are a great resource to learn more about the specific forms and processes involved in registering for, finding, and winning government contracts for small businesses.
If you feel more comfortable learning about government contract opportunities in an in-person environment, seek out your local SBA Procurement Center Representative (PCR). Procurement reps offer training, mentoring, and counseling to aspiring government contractors along with in-person matching events between agencies and qualified small businesses. Here’s how to find the PCR in your area.
Both the SBA and the Government Services Administration offer mentor-protege programs to help qualified small businesses connect with more experienced government contractors.
While the SBA Mentor-Protégé Program is open exclusively to participants in the 8(a) development program, you might be eligible to participate in the GSA Mentor-Protégé Program with no additional business development requirements.
There’s no denying the learning curve involved in entering the government contracting space. But as with everything else you’ve taught yourself as a small business owner, procuring government contracts is absolutely a skill that you can learn. Through an investment of time and effort, you can expand your company into the lucrative world of government contracts for small businesses.
In order to qualify as a small business for government contracts, you must meet the Small Business Administration’s size standards. In general, a small business (non-manufacturing) will make under $7.5 million per year and have fewer than 500 employees (manufacturing).
You’ll have the best luck finding government contracts for small businesses on SAM.gov. You can also work with bid-matching services or market directly to agencies.
You’ll need to first start and register your business, apply for a DUNS Number, look for your company’s NAICS code, register in the System for Award Management, then begin searching for government contracts to bid on.
Meredith Wood is the founding editor of the Fundera Ledger and a GM at NerdWallet.
Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.