The Pros and Cons of Being a Government Contractor
Several private companies are now setting their sights on selling their goods and services to the federal government. With the opportunity to earn a high margin of profits, becoming a government contractor seems like an attractive option to grow business further, no matter what industry it may belong to. But, with great profit comes greater responsibility—and requirements.
Is it still worth it to become a government contractor? Weigh in your options and know the pros and cons of being a federal contractor.
Pros of becoming a government contractor
1. Good Pay
One of the biggest selling points of this lucrative, hundred-billion dollar industry is the opportunity to rake in huge profits. In the fiscal year 2020, during the peak of the COVID-19 pandemic, the federal government has posted a record-breaking $682 billion worth of awarded government contracts. This significant jump from 2019’s $599 billion is boosted by the federal government’s efforts to help the country combat the effects of the pandemic.
And what’s more—this rise in federal contract spending is still projected to rise even further in the coming years, according to an industry forecast by the Senior Vice President for Information Solutions of Deltek, Kevin Plexico. The 2021 Wash100 recipient cited four upcoming trends this year: increased agency budgeting, more stringent government contract requirements, boosted opportunities for small businesses, and growth of consolidated contracts.
Finding the excellent timing to enter the federal marketplace can make or break your business. And with all of these trends coming into the picture, now might be the perfect time to join the government contracting industry. To know the basic requirements to become a successful government contractor, you can check out this beginner’s guide for federal contractors.
2. More accessible to small businesses
Daring to enter the federal contracting industry dominated by corporate giants can be terrifying as a small business owner. This might get you thinking about whether your skills and capabilities are good enough to compete for a government contract when you are going against known famous contractors.
But fortunately, with the government’s increased demand for the products and services offered by government contractors, the industry is now becoming more open to small business owners.
In partnership with the U.S. Small Business Administration (SBA), the federal government enacts small business-centric policies and reforms to give every small business owner a fighting chance to make it big in the government contracting industry.
On top of that, SBA also spearheads the 8(a) Business Development Program. SBA offers special assistance and government contract privileges to businesses under certain socio-economic conditions in this federal initiative. So if you run a women-owned small business, a service-disabled veteran who manages a small enterprise, or a small business owner who falls under the stated socio-economic categories, then you may be entitled to enjoy the benefits of this government program.
3. Diverse contract opportunities
The list of products and services needed by the federal agencies to function perfectly goes on and on. From the acquisition of toiletries to stock up the agency’s office to procurement of the latest military tech to beef up the nation’s defenses—it is guaranteed that the federal government will always need something from somewhere.
The needs and requirements of the United States government to remain fully functional are truly diverse. If you want to thrive in this industry, you have to evaluate whether your products and services align with the current demands of the federal government. You can start by exploring the federal spending trend at USASpending.gov.
4. Long contract period
Winning a government contract can be challenging at first. But once you have sealed a deal, you won’t be worrying about a steady stream of income for another year or so. On average, most government contracts about a year to three years. And there is also a possibility of contract extension if you exceed the expectations of the federal agency you are working for.
5. Timely payments
The terms of the contract bound both the federal government and the contractor. So if you are worried about delayed payments, rest assured that the federal agency you are working with will comply with the agreed payment scheme stated in the contract.
In most contracts, the federal government has 30 days to compensate the contractor. This payment scheme may vary depending on different factors such as the nature of the project, the type of contract, and more.
The government upholds strict policies and federal regulations for every transaction it makes with every government contractor. Since the resources used to fund federal contracts are from the taxpayer dollars, the government values transparency in each undertaking. You can view all of their spending records and federal contracts awarded in every fiscal year at USASpending.gov.
Cons of becoming a government contractor
1. Steep learning curve
Getting your bearings in the government contracting industry can be quite challenging with all the strict processes and systems. From registering your business to be a recognized government contractor to the actual contract bid—there are a lot of technicalities involved that can overwhelm anyone. And on top of all that, you also have to run your business simultaneously.
Fortunately, there is an abundance of learning opportunities for aspiring government contractors. You can reach out to your local Procurement Technical Assistance Centers (PTACs) for starters. Managed by the SBA, PTACs are learning facilities dedicated to guiding budding government contractors in the industry. Their services range from assessing your business’s readiness to bid on government contracts to providing you with reports of past awarded federal contracts that are relevant to your business. Most of their essential services are free of charge.
Additionally, you can explore the things you need to know to become a government contractor with these guides on requirements to become a government contractor, tips on how to write a contract bid, and the different types of government contracts.
2. Unexpected budget cuts
The federal spending budget is pretty much decided before the fiscal year starts. However, there can be national emergencies or crises that can affect the budgeting for federal agencies, such as the COVID-19 pandemic.
3. Lack of stability
Government contracts are usually long-term, especially if you have displayed a stellar performance with your contract. However, once the contract has ended, you have to seek opportunities and submit bid proposals all over again.
But not only that! There are also some cases where the federal agency may cancel the contract midway through. Although they will compensate you fairly for the work rendered, it may mess up your business plans if you do not have a backup project, just in case.
4. Slow profits
The government contracting industry is not some overnight miracle. Before you start to rake in huge profits, you must dedicate a considerable amount of time and resources. Arranging your requirements and planning for your strategy will take you more than a year. And also, you have to account for the time you need to craft bid proposals and the period of waiting for the agency’s response.
On top of that, you should also keep in mind your agreed payment terms with the federal government. Different contracts have different payment schedules in place. In some contracts, the government can give the initial funding for the project. In others, you have to shell out your funds to support the government project first. The government will then reimburse your incurred costs only after completing the work.
When entering the government contracting industry, understand that this is a serious undertaking that will need your time, resources, and dedication. If you only want a lucrative opportunity to earn cash instantly, then this path may not be for you. If you choose to be a government contractor, you have to be prepared to constantly hustle and adapt quickly to the trends of the highly-competitive federal marketplace.