Whether you are already contracting with the federal government or looking to get started, it is helpful to know more about the pros and cons of government contracting. Let’s start with the obvious pro: there is an abundance of money to go around. For fiscal year 2022, federal agencies will spend a total of $3 trillion — that’s $3,000,000,000,000. A big chunk of that will go to government contracts, including a set budget for small businesses. That means there is ample opportunity for your business to get government work.
On the other hand, the biggest con of working with government agencies is the “red tape.” The term stems back to a 16th century practice of using red ribbon to bind stacks of government documents. It eventually took on a new meaning: “government or bureaucratic obstruction,” or as a new government contractor might see it, pages of tedious forms and procedures standing between you and winning your first government contract. It is a time-consuming process, so do not expect to rake in money quickly.
And although you would be working with the government, you will not be considered a government employee. Government contractors are considered private sector employees, so while you do the work and team up with government employees, you will not have the same stability or benefits they do. You also will be solely responsible for your employees’ benefits.
Despite some negatives, ultimately, there are great rewards to be had in the government contracting world. However, it comes with a price to pay to play the game. In this article, we will look at some of the pros and cons for businesses pursuing a government contract.
Pro: As we mentioned earlier, the good news is the government has a lofty budget and is always spending money. As long as you follow the rules, you have a chance to win some awards. Most contracts operate on a specific timeframe, so you will know exactly how long you will have the work, which can be helpful for a small business. If you do great work, it is likely that federal buyers will connect you with other opportunities. If you are a GSA (General Services Administration) contractor, getting on a schedule contract will allow you to sell your services or products to any federal agency, so you can cast a wide net.
Con: Because you are a contractor, work is not guaranteed. You will win some awards, sure, but you will also lose out on some, which means it can be difficult to rely on contracting alone. Worse, a contract could be put on hold or the funding dropped altogether. “Job security” isn’t a thing.
Pro: Generally, payments are released within 30 days, so you know when the funds are coming and can feel pretty good about relying on them. In some instances, it can even come a bit quicker for construction contracts. And in the event you are not paid within the terms of your contract, the government will pay interest on what you are owed. A little extra money cannot hurt, right?
Con: As mentioned, those payments could take longer than 30 days, and sometimes, up to 90 days. Any mistakes in the billing process can take a lengthy amount of time to correct, as well. If you do have a payment dispute, you would be hard pressed to come out on top of an argument with the federal government. And if a government shutdown occurs, your work — and pay — will also grind to a halt.
Pro: The good news is that, once you have done all the hard work at the beginning to become a prime contractor, figure out how to navigate forums like the GSA Schedule program and start winning service contracts, you are in. You have completed the arduous beginning process. Congrats!
Con: Doing the above takes time and a great deal of effort, and there is still plenty to learn as you go, like how you get on the GSA Schedule and the ins and outs of working with the United States government. Things change, budgets are largely dependent on taxpayer dollars, and government jobs are to be taken seriously if you want to keep getting them. So, while there are resources to help you meet compliance, it is up to you to stay on top of the government’s expectations. Essentially, your learning is never really done.
Pro: It can be great to be your own boss. You get to decide what work you do or do not want to pursue. You can define your own flexibility and if a job ends up not being a great fit for you, you can opt not to renew the contract once it is up. If you are aiming for a full-time government position, being a contractor is one way to get a foot in the door.
Con: On the other hand, the government can also choose not to renew your contract for whatever reason. You will also be vying for the same contracts countless others are, so competition will be fierce. And for reasons we cannot quite explain, some government employees tend to look down on contractors. Also, to reiterate, contractors do not get any benefits.
Did we hammer home the fact that there is a huge pot of money to be had? It also comes with a vast customer base that provides incredibly specific information on what their needs are, and many ways to scour past contracts to find out how you can make your proposal much more competitive.
And do not forget, nearly a quarter of the federal government’s annual contracting budget is set aside for small businesses, so your organization is never too small to win a federal award.
Another small business perk? You can take advantage of set-asides, or a grouping of contracts specifically set aside for small businesses. It can make getting started much easier, as your competition will be narrowed to other small businesses. Your business will have to register with the SBA (Small Business Administration) and qualify under one of four categories: Service-Disabled-Veteran Owned, Women-Owned Small Business, 8(a) Business Development, or Historically Under-Utilized Business Zone (HUB).
You will also save money on marketing costs. You can take the funds you would normally use to advertise your business and redirect that capital to learning how to work within the federal space. There are training programs offered by the federal government that are either low-cost or free.
Because of the nature of working with the federal government, you will be subject to background checks and, if you secure any classified contracts, you will need a security clearance. Obtaining a high-level clearance is difficult and will require providing an incredible amount of information about yourself. You will also have to be sponsored by a cleared contractor or a government entity to apply.
With contracting comes the possibility — and risk — of being audited. There are several types of audits, and the aim of each is to ensure that you are following the given government rules, following all policies and business systems, and keeping consistency between cost and accounting practices. If an audit results in a violation, you can face civil or criminal penalties. Civil penalties are used by the government to recover any money or damages, while criminal penalties can lead to imprisonment for the person who signed certificates of cost or pricing data. There are many firms and consultants that can help you prepare for an audit, though.
And it deserves to be mentioned again – working through “red tape” can be a constant process. Paperwork processes can become bureaucratic and tedious. There is not much you can do about it, either. It is just part of doing business with the government.
As a result, it can often take a while to get the ball rolling, which can lead to slow decision-making or frustrating waits for answers to your questions. Patience will indeed become a virtue.
While there are distinct pros and cons of government contracting, working with federal agencies can be a great way to find success for your business. GovCon Wealth, a division of Cope Corrales, can help your business figure out if the government contracting world is right for you. And when it is time to sell your government contracting business, GovCon Wealth’s experts will help you get the best value.