Government Contracting in Business: A Guide For Small Businesses

Government Contracting in Business: A Guide For Small Businesses

The COVID-19 had everyone in a tight chokehold. Countless businesses, especially small businesses, were shut down due to the pandemic’s adverse economic impact. And unfortunately, the construction industry was one the most affected industries.

A series of lockdowns and quarantines put the economy on a dangerous pause. And given how sensitive the construction industry is to economic changes, it is not surprising why construction companies downsized—and even went out of business. Yet despite this grim situation, this study said that the construction industry also holds the greatest potential to stimulate economic recovery. And with government programs that aim to revitalize the economy in full swing, such as the Bipartisan Infrastructure Law, things are finally looking up for the general contracting business owners.

Government Contracting in Business: Pros and Cons

Government contracting can propel your own business to success. On the business side, it can help you earn lucrative side. On the construction side, it can give you access to exciting projects.

Pros

  • Lucrative profits

Despite the pandemic, federal government spending consistently rose. During the peak of COVID-19 in 2020, the U.S. government awarded a record-breaking $682 billion for contracting business contracts. Although this figure dipped in 2021 due to a decrease in research spending for COVID-19, their 2021 spending still ranked second-highest since 2017.

Furthermore, the federal government is launching various initiatives to stimulate the economy. More and more government business contracts will be awarded in the coming days. In addition to the trillion-dollar Bipartisan Infrastructure Law (Infrastructure Investment and Jobs Act), there is a foreseen $203 billion government spending for business contracts.

  • Stable income stream

Business contracts awarded by the government always last for quite a while compared to other clients. A single project with them can last for 1-3 years. And they can also choose to extend the contract with you if there are still things that need to be done for the contract.

  • Exclusive government contracting opportunities for small businesses

Small business owners faced the brunt of the economic crises brought by the pandemic. And that is why there are special contract provisions for small businesses.

Set-asides, or set-aside contracts, are federal contracts that limit the competition for small businesses. If established companies and smaller general contractors face off in a competitive bid, the playing field wouldn’t be even for them. To qualify for set-asides, your business must register with SBA’s contracting assistance programs. Whether you are a general contracting business owner or not, as long as you satisfy the requirements, you can bid for set-asides.

If you are managing a small construction business, you can try to see the other assistance programs available for you. Depending on your industry, you can access loans, grants, investment capital, and assistance programs.

From registering to the right places to understanding different types of agreements—becoming a government contractor is a challenging feat indeed.

Cons

  • Steep learning curve

The tangled web of paperwork you must navigate to register your business as a federal contractor is intimidating. On top of managing your company’s daily operations, you must ensure that your business complies with federal and state regulations and arrange all documentation required for your registration.

  • Slow profit growth

With great profits come great requirements.

If you are looking for an overnight miracle, this business path is not for you. Before you can start reaping the benefits of being a general contractor, you have to go through all the hoops–ensuring business compliance, registering in the right places, bidding for business contracts, and a whole lot more.

If you want to make it big in the federal contracting business, you need to put in the work. You must have the guts and the smarts to rise above this highly-competitive industry.

  • Lengthy and costly paperwork processes

The amount of paperwork you need to accomplish is a roadblock general contractors must overcome.

First, you must fulfill the requirements to ensure your company complies with federal, state, and local business regulations. As of writing, there are roughly 90,000 laws and regulations in effect. This confuses small business owners and saddles them with unnecessary cost burdens.

Second, the federal government is strict in selecting general contractors to work with. They implement a rigorous registration process and licensing requirements to ensure that only those who are committed and capable can join the industry. But we are here to walk you through it!

How to start a general contracting business?

  1. Understand the licensing requirements

There is a lot at stake when it comes to infrastructure projects with the government. It should be built according to the safety and building codes, especially since most of these projects will be used by the greater public.

Given how the resources used in federal contracts came from the public, the safety of these public structures should be top-notch. And that is why the federal government has laid out a stringent licensing process for general contractors who want to do business with the public sector.

To become a general contractor in the federal contracting field, you should possess the professional skills and experience necessary to perform the job. And to prove that you have what it takes to be one, you have to obtain the required licenses. Double-check the requirements needed for your state and federal licensing since the licensing requirements may differ for every state.

Deciding on which business structure you should adapt can affect the success of your company.

  1. Decide on your business structure

After obtaining the necessary professional and business licenses to operate your new business, you now have to decide your business structure. Most small businesses choose between sole proprietorship, s corporation, or LLC. Carefully choose which business structure will work for your company since it entails tax implications that will affect you.

To give you a gist, here are some of the things you should know about these business structures:

  • Sole Proprietorship

Since fewer government regulations are imposed on a business structured as a sole proprietorship, this structure is commonly used by small businesses, independent contractors, and consultants.

If you plan to structure your business as a sole proprietorship, you will experience certain tax advantages, such as paying fewer taxes and easier tax filing. Unlike other business structures, you do not have to get an Employer Identification Number (EIN) from IRS since you are only required to pay your personal income taxes. However, your company’s liabilities might affect your personal assets.

  • Limited Liability Company (LLC)

Unlike a sole proprietorship, an LLC business structure will protect you from personal responsibility for your company’s debts and liabilities.

This type of business structure is usually adopted by businesses that are initially structured as sole proprietorships but want to expand, and businesses with high potential for profits but their venture is risky. LLCs do not pay their taxes directly from their earnings. The stakeholders will take their share of profits first and file their taxes under personal income.

  • S Corporation

An S Corporation structure and LLC share similarities, but this arrangement gives small businesses a chance to incorporate while still maintaining their tax exemptions.

However, an S Corporation structure entails more complex business regulations and costly incorporation procedures. Additionally, forming an S Corporation is more challenging than an LLC since the stakeholders of the former should fulfill specific requirements while the latter is purely upon the owner’s discretion.

  1. Explore business insurance

A lot can happen during a federal construction project. And to protect your business from these unforeseen incidents, you should get your company insured.

The most common insurance policy that general contractors avail of is general liability insurance. This insurance policy offers general protection on claims due to bodily injuries and property damages caused by your company. It also protects your business from slander.

The insurance coverage you will need will depend on your current federal project. That is why it is advisable always to explore the best insurance policies available.

  1. Register your business at SAM.gov

Once you have laid out the foundations of your business, you can proceed to the next step of the journey: registering your business as an official government contractor.

To become a government contractor, you must register at SAM.gov or System for Award Management. The list of requirements for this is quite long, but here are the major documents that you need to prepare beforehand:

Unique Entity ID (UEI)

This is the 12-character code that federal agencies will primarily use to identify entities. You can get your UEI right after you register at SAM.gov. However, if you have a previous registration using the old DUNS Number, here is a guide on getting your new UEI.

North American Industry Classification Code (NAICS Code)

NAICS Codes are a special set of numbers representing your business’s industries. Usually, a small business only needs one NAICS Code. But if you offer a wide array of goods and services that span different sectors, you can bear more than one NAICS Code.

To get your NAICS Code, head over to this self-service website. Then among the codes listed there, choose the NAICS Code that best describes your business.

Core Business Information

SAM.gov will require you to supply your business’s core information, such as your physical address, organization start date, end fiscal date of your business, and more.

Financial Information

The government will ask for your bank details and preferred payment methods during the application. This will ensure that your transaction will the government will go as smoothly as possible.

The women-owned small business program is just among the other business assistance programs by the government.

  1. Check whether your company qualifies for federal business assistance programs

It is a common fact how difficult it is to become a general contractor, let alone to become a government contractor on top of that. Fortunately, there is an abundance of federal business assistance programs available now. Maintained by the Small Business Administration (SBA), here are the top government contracting assistance programs that you should know:

  • 8(a) Business Development Program

This is the best business assistance program available for newbie contractors. Members of this program can compete for set-aside contracts, receive one-on-one development and technical assistance, connect with business compliance experts, and more.

Explore how this program can help you enter the federal contracting field here.

  • Women-Owned Small Business (WOSB) Program

We live in the modern age, yet women in several industries remain underrepresented. Qualified small businesses under this program will receive the privilege to compete for set-aside contracts. These are types of government contracts that are reserved for disadvantaged small businesses.

To know more about this program, click here.

  • Veteran-Owned Small Business Program

For military veterans who have decided to start a business, a government assistance program is designed to help. Like the WOSB program, veteran-owned small businesses can also compete for set-asides.

Click here to view the details of this assistance program.

  • HUBZone Program

If your small business is headquartered in a recognized historically underutilized business zones, and at least 35% of your employees are living in a HUBZone, you can qualify for this program.

Under this program, you can compete for set-aside contracts and gain preferential consideration when bidding in full and open competition.

  • 7(j) Management and Technical Assistance Program

If your business is an official beneficiary of the 8(a) Business Development Program, you can further your technical skills in the contracting industry under this program.

This management and technical assistance program can help you improve your knowledge in key business management areas, such as marketing, business plan strategizing, financial management, and more.

 

Subcontractors can help you fulfill more challenging federal construction projects.

  1. Work with subcontractors

Hiring subcontractors is a common practice in general contracting and also the federal contracting industry. Their specialized skillset accelerates the speed of your construction project while maintaining quality.

Furthermore, specific federal business contracts require you to hire small business subcontractors. Do your due diligence and seek the assistance of an attorney who is well-versed in business contract law. Your attorney will guide you in drafting your written agreement.

  1. Nail down your business plan and marketing 

With everything out of that way, it is time to get your business known to your target market.

But before doing that, you should formulate a business plan to guide your efforts. Using the actionable insights you gathered during your market research, try to see the best marketing paths to venture. Know the places where your target federal agency visit when looking for federal contractors and start asking questions, such as “Do they prefer to meet in-person during networking events?”, “Do they frequent social media to research government contractor profiles?”, and more.

Summary

The federal government saw how the construction industry, which was struck hard by the pandemic-induced economic issues, offered the best opportunities for economic recovery. With billion-dollar infrastructure projects on the way, the need for general contractors is on the rise.

The application process to become a registered government contractor in the construction industry is complicated. But, there are federal assistance programs in place to encourage more companies to do business with the government.

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