If you’re a small business owner, you’re probably constantly thinking about ways to grow your business. One way that many small businesses are expanding their customer base and growing sales is by tapping into a huge market – government contracting. It’s a fairly well known fact that the U.S. government is the largest purchase of goods and services in the world.
According to the U.S. Government Accountability Office’s WatchBlog, the U.S. government spent a whopping $586 billion on contracts for goods and services in 2019. Approximately 35% was spent by civilian federal agencies such as the Department of Energy, Department of Veteran Affairs, and Department of Health and Human Services, and 65% was spent by the Department of Defense with the bulk being spent by the Navy (31.5%).
Thought 2019 was a big year? In fiscal year 2020, federal contract spending reached $681 billion, a year over year increase of 16%, according to BGOV. Unsurprisingly, a good chunk of the budget (about 6%) was spent on COVID-19 related expenses.
There’s good news for small businesses. In order to create a level playing field for small businesses, the federal government has a goal of awarding at least 23.5% of all federal contracts each year to small businesses. These are called set-asides which include various categories such as women-owned businesses and service-disabled veteran-owned businesses.
Last fiscal year, approximately $144 billion in federal contracts went to small businesses which is a sizable uptick from the previous year and just shy of the 23.5% goal.
So Who Qualifies as a Small Business?
In order to qualify as a small business for government contracts, a business must meet the Small Business Administration’s (SBA) size standards. According to Fundera, a small business (non-manufacturing) typically makes under $7.5 million per year and has fewer than 500 employees. SBA establishes small business size standards on an industry-by-industry basis so it’s best to use the SBA small business size standards tool to learn more about the qualification standards for your specific industry.
What is a NAICS Code and Why Does it Matter?
To become a government contractor, it’s important to know your NAICS (North American Industry Classification System) code, a six-digit numeric code that defines the industry sector that your business operates in. Knowing your NAICs code comes in handy as you search for contract opportunities in the various resources that are made available to businesses that wish to do business with government agencies. Some of the larger industries and their corresponding NAICs codes are below and by no means is this an exhaustive list but just a small sample of the many different industries that are awarded contracts each year:
How do Small Businesses Become Government Contractors?
There are two broad categories of government contractors:
- Prime contractors bid on and win contracts directly from government agencies. They work directly with the government and are ultimately responsible for ensuring that the work is completed and delivered as defined in the contract.
- Subcontractors are usually part of a team and are often spearheaded by a prime contractor. Subcontractors enter into an agreement with the prime contractor and generally work with the prime contractor rather than directly with the government. They’re typically brought in to provide a specific product or service.
Subcontracting is a great way to get started in government contracting because it enables businesses that are new to government contracting to ease into the process and lean on the knowledge and experience of the prime contractor.
Becoming a government contractor takes some work but there are many resources available to guide small businesses through the process. Below are five simple steps you can take to get started:
- Get a DUNS number from Dun & Bradstreet. The Data Universal Numbering System – or DUNS number – is a widely used system that assigns a unique nine digit numeric DUNS number identifier to a business entity. The DUNS number is tied to the business’s credit profile that is tracked by Dun & Bradstreet. Many U.S. government agencies require businesses to have a DUNS number before they do business with them. You can register online at DUNS Request Service
- Register in SAM. Whether you decide to bid on a government contract as a prime contractor or subcontractor, you will need to register with the System Award Management or SAM. SAM is a website managed by the U.S. government and used by government agencies to identify contractors to work with. Government agencies are required to use SAM to list any contracts over $25K and they will not do business with entities not registered with SAM. Below are some tips to navigate through SAM:
- Be as thorough as you can when you build your company profile and be sure to update it every year in order to remain active.
- When registering, make sure you include keywords that government agencies may use to search for contractors in your field.
- Be sure to have your DUNS number and NAICS code handy as well as your Taxpayer’s Identification Number (TIN) which is usually your Employer Identification Number (EIN) assigned by the IRS. Sole proprietors can typically use their Social Security Number as their TIN.
- Once you register on SAM, you can start running searches for government contract opportunities that may be a good fit for your business.
- Registering on SAM will also get your business listed on the Dynamic Small Business Search (DSBS) database which government agencies use to identify small business contractors to work with for upcoming contracts.
- Work with the Office of Small and Disadvantaged Business Utilization (OSDBU) or an Office of Small Business Programs (OSBP) which are entities that have been established to help federal agencies identify small businesses to work with.
- Leverage the additional resources that are there to help small businesses like you:
- Procurement Center Representatives (PCRs) – are available regionally to help small businesses win federal contracts. PCRs are often able to influence opportunities that should be set aside for small businesses. PCRs can also help with market research and can help small businesses with payment issues, provide guidance on the contracting process, and more.
- Procurement Technical Assistance Centers (PTACs) help small businesses determine whether or not they’re ready for government contracting. Among other services, they can assist small business owners with registering for the various databases, find contracts to bid on, help submit bids, and more. In addition, PTACs offer a variety of workshops and events to teach small businesses about connecting with decision makers. They also provide one-on-one counseling free of charge.
- Prepare your bid
- Review the details of the contract opportunity thoroughly to ensure your small business can fulfill ALL the requirements. Do not overpromise. Not being able to deliver on the terms of the contract could result in termination of the contract and a less than stellar report card.
- Include pricing information and be sure to provide realistic costs so that you don’t over promise on what you can deliver at what cost.
- Take the extra time to make sure the proposal is visually appealing since there are humans reviewing each proposal.. Include graphics and images where appropriate and be sure to check for typos and proper grammar.
- Once you submit your proposal, expect to wait anywhere from 30 to 120 days to hear back. If you don’t win the contract, you can ask the contracting officer to provide some feedback so that you can learn from each experience.
Whatever happens, don’t become discouraged and don’t give up – the right opportunity will come along.
There are clearly defined steps that small businesses can take if they want to begin working with the U.S. government. But for many small businesses, it’s worth the effort as government contracting can be a significant and consistent source of income and a boon to their bottom line. There are myriad resources available for those that want to tap into this huge market.