Many small businesses maintain and increase their operations through reliance on local, state, and federal government contracts. While these businesses may also secure business through the offering of competitive bids on jobs offered by the private sector, small business owners should be aware of the differences in procuring work from the public and private sectors. The most fundamental difference between the procurement process in the public and private sectors concerns the process itself; whereas some private companies may have fairly streamlined processes for awarding contracts to outside bidders—or may not even bother with competitive bidding at all, if they are comfortable with a certain contractor—governments at the local, state, and federal level are all obligated to adhere to a significant body of law designed to ensure that 1) taxpayer money is spent wisely, 2) contracts are not awarded for less-than-legitimate reasons, and3) all businesses are provided with a fair opportunity to make their case for the contract in question. "Government buyers are expected to spend money wisely—in the public interest—so their purchases are usually subject to much public review," explained E. Jerome McCarthy and William D. Perreault Jr. in Basic Marketing. "To avoid charges of favoritism, most government customers buy by specification using a mandatory bidding procedure. Often the government buyer is required to accept the lowest bid that meets the specifications."
Submitting bids for public contracts can be a frustrating experience for businesses. The process of awarding contracts—at the local, state, or national levels—is a sometimes cumbersome one that is still heavy on bureaucracy, despite recent streamlining. In addition, government contracts are far more exposed to public scrutiny than are private ones. But business analysts and government procurement officers agree that the potential benefits of securing public contracts far outweigh the disadvantages. After all, local, state, and federal government offices and agencies comprise the single biggest customer block in the nation. For many small businesses, then, government procurement is a potentially lucrative avenue to long-term organizational growth and success.
Government agencies and legislators recognize this reality as well. In recognition of the importance of federal contracts to many small business establishments, U.S. legislation requires that a certain percentage of its contracts go to companies that qualify as small businesses. These goals, which are arrived at through the combined input of the Small Business Administration (SBA) and individual agencies, classify bidding companies not only by their size, but also by other classifications (minority-owned businesses, women-owned businesses, businesses located in high unemployment areas, etc.), and government purchasing agents work to fill these slots as well. In fact, some contracts are specifically set-aside for the "exclusive participation" of small businesses, small disadvantaged businesses (minority-and women-owned enterprises), and businesses in high unemployment areas.
The foundation of modern-day government contracting at the federal level is based on two laws—the Armed Services Procurement Act of 1947 and the Federal Property and Administrative Services Act of 1949. These laws sought to codify all the various contract laws that had sprouted up over the years and provide overarching guidelines on government procurement. The laws also resulted in the creation of two sets of regulations designed to oversee affairs in the realm of government contracts—Armed Services Procurement Regulation (ASPR) for military agencies and Federal Procurement Regulation (FPR) for civilian agencies. These voluminous guidelines, though, were rife with exceptions, alternate procurement procedures, etc., and in 1979, Congress passed the Office of Federal Procurement Policy Act Amendments. These pieces of legislation called on the federal government to develop a single set of simplified procurement regulations for all government agencies.
The result of that directive was the Federal Acquisition Regulation (FAR), which covered all federal agencies. The FAR, said Barry L. McVay, author of Proposals That Win Federal Contracts, "changed no laws; it required government purchasing agents to follow the same procures that were prescribed in the earlier regulations." But, he added, "it was written in simpler language, arranged subject matter in a more logical sequence, and eliminated many of the contradictions and ambiguities that bedeviled everyone…. The FAR is the 'bible' for all who conduct business with the federal government. Government business is conducted in accordance with its rules, and contractors must comply with its procedures or risk being eliminated from consideration." That same year, Congress also passed the Competition in Contracting Act of 1984 (CICA), which opened up the doors to competitive bidding in numerous areas that had previously only allowed limited bidding practices.
Today, bidding for government contracts at all levels, but especially the state and federal levels, is intense. Many small businesses are in the thick of the battle, fighting for contracts that look to be within their financial and operational grasp. But making a bid on a government is a time-consuming process, and consultants often counsel small business enterprises to be selective in their bid choices.
Federal procurement offices have recognized that the process takes a toll on small businesses as well. In 1995, Congress passed the Federal Acquisitions Reform Act, which arranged for a two-phase process of contract awarding in which the agency office selects a limited group of bidders based on their qualifications and general approach to the project, then examines detailed proposals from those "short listed" bidders, choosing the ultimate winner on a "best value" basis. "Best value calls for ranking proposals based on a weighted average of scores on all criteria stated in a solicitation," explained Edward Markus in American City and County . "The agency may award the contract after this evaluation, or it may discuss proposals with those considered in the competitive range and then permit all short listed proposers to submit best and final offers."
Small business owners currently engaged in soliciting government contracts—or weighing the possibility of doing so—should make sure that they obtain a copy of the Federal Acquisition Regulation. FAR is available through the Government Printing Office (GPO). In addition, business owners should be aware that the FAR is updated in two different ways.1) Federal Acquisition Circulars (FACs) contain changes to the FAR as a result of federal legislation; these are easy to use, because they are distributed as replacement pages that can be instituted in place of outdated FAR regulations. 2) Each federal department also has its own materials that supplement—not supplant—FAR guidelines. These supplementary materials, which can be quite extensive, are also available through the GPO. "Potential suppliers should focus on the government units they want to cater to and learn the bidding methods of those units," recommended McCarthy and Perreault. "Then it is easier to stay informed since most government contracts are advertised.
The Commerce Business Daily (CBD) is the primary information source for businesses seeking federal contracts. It is through this publication that various government agencies notify the public sector of upcoming solicitations and decisions on contracts. The Commerce Business Daily is available through the GPO.
Small businesses hoping to secure a federal contract will turn to one of three methods of solicitation: Request For Proposals (RFP), Invitation For Bid (IFB), or oral solicitation. RFPs are the most commonly utilized of these solicitation methods.
For smaller contracts, government purchasing agents typically use a simplified system of awarding in order to minimize administrative costs. In such instances, a purchasing agent may simply call a few potential contractors from their bidders list and ask for a quote, awarding the contract to whoever comes in with the lowest responsible quote. "Ninety-eight percent of all federal contractual action are made through simplified procedures," wrote McVay. "While that may seem surprising, you must realize that these small purchases are the government's equivalent of buying a cup of coffee or a newspaper, something that is done routinely to meet recurring needs."
Not surprisingly, awards for larger contracts—which can, after all, run into millions of dollars—are bestowed only after a more comprehensive process. When a government agency has a project for which it wishes to receive bids it may: 1) Ask for sealed bids through the use of an IFB, or 2) Negotiate with a bidder on specific terms of the agreement. This latter methodology is more frequently used.
Business consultants, executives, managers, and purchasing officers alike note that there are several keys to successfully pursuing government contracts, no matter what their size or other characteristics:
Learn about the process and the impact of successful bids on business operations. In addition to conducting basic research on the agencies and project areas in which they are interested, small business owners need to educate themselves on the nuances of bidding, the repercussions of a successful bid on company operations (workforce allocation, needed facility upgrades, etc.), and a host of other considerations.
Review RFPs on a regular basis. Small business owners should faithfully check CBD and other sources to make sure that possible projects do not pass by unnoticed.
Make bids judiciously. Small business owners should consider many factors when weighing whether to put in a bid on a project, such as current workload, delivery schedule, expectations of the agency, etc.
Submit a strong proposal in accordance with agency guidelines and time table. Businesses do not always allow for sufficient time to put together an adequately researched and detailed bid. Company leadership should make sure that adequate resources—both in terms of time and effort—are allocated for this purpose. Agencies who receive tardy, incomplete, or shoddy proposals will quickly discard them.
Prepare for the awarding of the project. McVay noted that businesses are sometimes subjected to pre-award surveys to determine their ability to fulfill all contract obligations; this is especially true if the government office has never worked with the bidder before.
Key competency areas typically examined by government purchasing agents include:
Contractors are often asked for extensive information by government purchasing agents, and they should be prepared to hand it over and accommodate surveys and other information-gathering activities by the government office in question. Information that may be requested from the contractor includes financial data, personnel information, and reports on all aspects of production (from technical capability to quality assurance capability), but the agent may also contact suppliers, trade and business associations, customers, financial institutions, and contract administrators of previous government jobs that your company has completed.
In recent years, various government offices at all levels have followed the federal government's lead and pursued "low bid" alternatives when awarding contracts to the private sector. In previous eras, cities, counties, states, and federal offices all generally awarded contracts to the lowest responsible bidder, reasoning that such decisions minimized exposure to charges of favoritism, corruption, and backroom dealing. Both contractors and purchasing agents have observed, however, that this dynamic has undergone considerable change, especially in such high-cost areas as public works projects (building and road construction, etc.). "In recent years," wrote Markus, "more and more localities have grown frustrated with this traditional approach to procurement. Some have found that completed projects were not fully responsive to their needs, while others found that their new facilities were difficult to operate and expensive to maintain. Some local agencies have had trouble controlling the escalating costs of public works projects, including change orders and claims, at a time when jurisdictions are trying to stabilize or reduce taxes."
As a result, agencies at local levels have increasingly followed the lead of federal offices, which have encouraged "best value" and "performance-based" considerations in awarding contracts to bidders. As mentioned above, "best value" calls for ranking various proposals on a whole range of criteria and selecting the winner based on all those factors, not just price. "Performance-based" contracting, on the other hand, is an arrangement wherein the contract defines the required performance standards for the project but leaves it up to the contractor to devise the means of accomplishing the task in accordance with relevant laws. Several procurement policymaking agencies in the federal government, including the Office of Federal Procurement Policy, have touted performance-based contracting as superior to traditional low-bid contracting in every way, including cost, service, and delivery time.
Hanson, Cynthia, and Lillian B. Handy. "Getting Your Share." Executive Female. March-April 1997.
Markus, Edward. "Low Bid Alternatives Earning Respect." American City and County. August 1997.
McKenzie, Richard B. "Bidding for Business." Society. March-April 1996.
McVay, Barry L. Proposals That Win Federal Contracts: How to Plan, Price, Write, and Negotiate to Get Your Fair Share of Government Business. Panoptic Enterprises, 1989.
Roberts, Kenneth, and Nancy Smith. "Design-Build Contracts Under State and Local Procurement Laws." Public Contract Law Journal. Summer 1996.
"Selling to the Government." Corporate Counsel. April 2000.
Weidenbaum, Murray L. "Government as a Market." Business and Society Review. Winter 1998.