September 15, 2021


Key takeaways

  • The federal government awards hundreds of billions of dollars worth of contracts to businesses each year.
  • Businesses that wish to bid on government contracts must be properly registered.
  • The government also sets aside contracting dollars specifically for minority-owned, veteran-owned, and women-owned businesses.

When the United States government is in need of a resource, product, or invention, it looks to the private sector to answer the call.

By law, the government must consider and provide opportunities for businesses by outsourcing development and research for its projects. The agreement between the government and these businesses is known as a federal contract, and the federal government awards hundreds of billions of dollars worth of them each year. Federal contracting opens up opportunities for businesses to develop a wider network of partners. And businesses can request referrals from their current clients to open up doors with other federal government sectors.

Here’s everything businesses need to know about how to become a federal contractor, bidding and winning on contracts, federal contract compliance, and the different types of federal workers.

How federal contracting works

Businesses and individuals that provide the government with goods and services are known as federal contractors. To win federal government contracts, businesses must provide a product or service that’s applicable and needed by the federal government. The federal government awards contracts to companies in a variety of industries, including the medical, real estate, construction, technology, and manufacturing sectors, among others.

The two general types of federal contractors are:

  • Prime Contractors: Those that bid and win contracts from the federal government directly
  • Subcontractors: Businesses that join a prime contractor’s team, usually to complete a specific project or order.

Businesses that wish to bid on government contracts must be properly registered with a Dun & Bradstreet (DUNS) Number as well as a North American Industry Classification System (NAICS) code. They must also create a profile for their business on the System for Award Management website,, detailing the specific and unique qualities they can deliver to potential contracts.

Businesses can search for prime contractor opportunities via the website as well. Subcontractors can search SubNet to find a prime contractor searching for capabilities and resources. For example, NASA is in need of products and services for the booming space industry. Prime contractors and subcontractors can respond to NASA’s requests to research and develop special projects.

Once a suitable contract is found, it’s time to prepare a competitive bid. The contract’s solicitation will detail all the requirements for submitting a proper proposal. After the proposal is submitted, the federal government will review and either approve or deny it within 30 to 120 days. If you’ve been denied, you have the opportunity to protest this decision, usually within 10 days.

Small Business Administration

Bidding on and winning federal government contracts

For businesses to receive contracts from the federal government, they have to submit a bid first. Potential contractors can find contracts open for bid on government databases, through a bidding service, or via the contract opportunities search function on the website.

The government sets aside a certain percentage of contracts specifically for small business owners to ensure a more level playing field with larger competitors that have more resources. It does the same for businesses owned by certain socioeconomic groups, such as minority or women-owned businesses. These set-aside designations can create additional opportunities and advantages for groups that might not otherwise receive them. During the 2020 fiscal year, the federal government awarded more than 26% of all federal contracts to small businesses.

Federal contract compliance

Once a business has won a contract, it is required to follow all compliance requirements and regulations outlined by the Office of Federal Contract Compliance Programs (OFCCP).

The OFCCP requires all federal contractors to abide by its requirements to take affirmative action and not discriminate against workers based on their sex, age, race, gender identity, sexual orientation, religion, national origin, disability, or veteran status. The OFCCP can audit a business during its federal contract to ensure it is meeting these standards. Businesses that contract with the government are advised to maintain all internal records and information about their hiring process and employees in case of an audit.

The federal government also expects its contractors to comply with the clauses outlined in the Federal Acquisition Regulation (FAR). FAR and its amendments each detail the general and unique requirements that federal contractors must adhere to when doing business with the federal government. These strict procedures, performance standards, and agreement terms must be followed without negotiation as a federal contractor.

COVID-19’s impact on federal contracting

While some federal contracts were paused because of the pandemic, other new ones were created to help support government emergency response initiatives. During the first half of 2020, federal departments such as Health and Human Services, Homeland Security, Defense, and Veterans Affairs awarded $17.8 billion in contracts for “critical goods and services” needed to respond to COVID-19. Of the emergency contracts awarded, $11 billion went toward goods like ventilators, gowns, and N95 respirators, according to the Government Accountability Office.

In September 2021, President Biden announced a sweeping COVID-19 plan with special safety protocols for federal contractors. According to the Executive Order, businesses and workplaces that contract with the federal government are required to provide “adequate COVID-19 safeguards to their workers performing on or in connection with a Federal Government contract.”

To learn more about federal contracting and how to bid and win contracts as a small business, check out the Small Business Administrations’s page on becoming a federal contractor.