As a business owner or employer, you’re always looking to expand your revenue — and tapping into the government contracting space might seem like a great opportunity to accelerate your growth goals. Government contracts can certainly guarantee a stable cash flow and help hedge against your slower months, but to get there first requires the right information and realistic expectations.
There are various pros and cons to stepping into government contracting, and aspects worth considering before taking the leap. Since the government is one of the biggest customers out there, it will work with almost any business (from small and mid-sized to large corporations) to purchase goods and services. It’s up to you to understand how to strategically navigate the landscape. So, to help set you on a path towards success, we’re answering the top questions that we often field.
One of the primary benefits of working with the federal government is the ability to obtain contracts, especially for companies that are just starting out. Contracts typically span between one and three years, which offers companies the ability to project their revenues over a defined time frame, make sound financial decisions, and focus on growing the business in other areas.
Contractors doing business with the federal government have to comply with an inordinate number of rules, regulations, and requirements. These can often be costly and inconvenient, but since compliance is compulsory it’s important to understand what you’re up against.
Understanding your long-term goals, clearly defining the services or products you’ll provide, and doing the appropriate research regarding industry codes and contract types are the best places to start. It is important to dedicate the proper resources to the areas that will align with what will ultimately result in the greatest success for your business while ensuring you stay competitive.
The most common award classifications are full and open, small business set-asides, contracting assistance programs, and joint ventures (to name a few) — all of which have significant implications on the short- and long-term operations of your business. The key to success is understanding and taking advantage of the contract awards available to your company and that best align with your goals.
Contract terms are the different ways the government can administer and compensate for services rendered or goods sold, the most common types being firm fixed price, cost-plus fixed fee, and time and material contracts. To optimize your success, it’s important to understand how these contract types are administered, the indirect rate structures, and how they impact the company’s profitability.
The technical name for this is the DCAA Form SF1408 “Pre-award accounting system survey” and it is designed to ensure that your company has the controls, policies, and procedures in place to support and administer a cost reimbursement type contract. This is not performed over the history of the company, but an examination of the company at a point in time to ensure that your accounting system and design of policies can support contract performance.
Understanding the determination of allowable versus unallowable costs is imperative, especially for cost reimbursable contracts. For a smooth contracting process, it is important to have unallowable accounts set up and understand the nuances of what constitutes an unallowable cost from the start. This can help mitigate mistakes related to grey expenses and prevent issues that might flag the DCAA, which will cost you time and money.
While the FAQs we’ve answered cover many of the basic, high-level inquiries you may have about the government contracting industry, we’re sharing other valuable resources that offer additional in-depth information and specifying which resources are best for addressing your specific needs.
