Is Federal Contracting Right for your company?

Revenue from federal government contracts can complement a company’s private sector sales, building on the expertise and brand developed commercially. Defense, civilian, intelligence and law enforcement agencies acquire over $700 billion in services and products annually from commercial companies and nonprofit organizations.

This administration is attempting to pull in more private sector entities to support its thousands of ‘missions,’ using the lure of eased paths to contract award without as much heavy lift in compliance as in the past.

Like any new market vector, company founders and executives should be clear eyed about the benefits, challenges, pitfalls and upside from becoming a federal contractor.

Parties interested in federal work don’t have to choose one lane or the other though need an appreciation of the heavier compliance placed on government contractors, which impacts its commercial work.

What makes federal contracting appealing. In effect, this appeal sheds light on the differences between commercial and government work.

• Duration. Contracts are often long-term, 2-5 years, with probability of annual re-order. Incumbent contractors - those already holding the contract - have a leg up in capturing the recompeted work provided they adapt their offering to the updated requirements of their government customer.

• Predictability. Typically, Government makes predictable, regular invoice payments; some pay monthly; some pay based on delivery of products or services. Criteria to approve payment and the payment cycle is specified clearly in the contract.

• Track Record. One key criterion for contract award is “Past Performance,” the ability to demonstrate acceptable, if not exceptional, work on prior government contracts. Importantly, companies can often use their commercial work as evidence of potential strong performance for government contracting. In some cases, prior work by an employee will be sufficient to demonstrate the value that can be brought to the federal market.

• Small business support. Federal government offers programs that provide preference for companies that qualified generally as small business for certain types of work, as well as subsets for firms owned and managed by minority individuals, veterans and women.

• Technology. Federal agencies want the most advanced technology that can be adapted for unique government missions. There are many programs - highlighted by the Small Business Innovation Research (SBIR), that provide pilot or seed capital for early-stage innovation, then lead to larger budget pathways for technology adoption as commerciality and program insertion are demonstrated.

• Transparency. The government publicly advertises many of the products and services it procures. It also will put out a request for information or sources sought notice, signaling to industry that this will become a future government buy.

Federal contracting comes with a set of challenges often not found in the private sector. Challenges of contracting with the Federal Government include:

• Compliance. At every stage of the sales, purchase, execution and management cycle, federal contracting requires incremental investment. The level of record keeping and reporting deepens immediately from the commercial rubric. Back-office operations covering contracts, legal, accounting, HR and recruiting require operational knowledge peculiar to the federal market. Examples of these are:

• Specialized accounting procedures

• Specified time keeping requirements

• Enhanced protection of sensitive data

• Prescribed pricing constructs

• Suddenness. The Government can terminate contacts for convenience, even if the contractor is performing well. This became particularly pertinent in 2025 as thousands of contracts were cancelled early.

• Market Shifts. Market priorities can change dramatically, especially when a new administration or party takes root.

• Procurement. The government has a maze of ways to acquire services and products, requiring companies to understand the regulatory and statutory landscape.

• Evaluation. Federal RFPs enumerate in detail how they will evaluate bidders, often cascading these priorities among price, past performance, technical solution, and management approach. This works well if your company can respond to these requirements.

• Time. While this administration leans toward more commercial type purchasing, the contract award cycle consumes significant time (encompassing mission requirement, budget generation, market research, solicitation, award, contract start/execution)

Want help navigating the federal contracting journey, whether deciding to enter the market or grow your business within that sector. Contact BBM to speak to an expert.