Guide To Different Types Of Federal Contract For Small Businesses

Get The Bid Package

After you have ascertained the government contract that you want to bid on, it is important to contact the agency and request a bid package. This package is also often called the solicitation package.

After you receive the package, review it carefully. Find out what the purchasing office is wanting to buy and figure out if your company can meet the requirements.

The Bid Package should contain the following: the buyer’s contact information including name, address, phone number, and e-mail address are listed on the bid notice. When you request the bid package, make sure to also ask for amendments.

Small Businesses Are Given Special Consideration When It Comes To Government Contracts

In many markets, small businesses are often outcompeted by larger organizations that often have access to almost unlimited resources. This set aside actually might increase a small business’s chances of winning a lucrative bid.

The federal government is required to set aside at least 23 percent of its total spending specifically for small businesses. Several small businesses have made a fortune just on federal government contract awards. However, before companies bid for contracts, it is important to understand the different types of contracts utilized by the government.

Time and Materials Contracts

The government rarely awards this type of contract because of the expense. A Time and Material Contract requires paying directly for any and all costs that are associated with the particular project. Labor Hour Contracts are defined as a variation of the time-and-materials contract, differing only in that materials are not supplied by the contractor. See 12.207 (b), 16.601 (c), and 16.601 (d) for application and limitations, for time-and-materials contracts that also apply to labor-hour contracts. See 12.207 (b) for the use of labor-hour contracts for certain commercial services. Labor Hour Contracts do not include the cost of materials.

Indefinite Delivery Contracts

The government uses this type of contract when it does not know in advance exactly how much of a product or a service will be needed for a project. They will usually list a range and certain companies will be invited to provide their lowest bids on a per-item basis. 

This includes Task-Order Contracts which permit government stocks of specific items to be maintained at minimum levels and allow direct shipments to the users of products or services. They also permit great flexibility in both quantities and delivery scheduling and the ability of buyers to order supplies and services only after specific requirements for them materialize. Job-Order contracts, a competitively bid, fixed price, multi-year construction contract based on established or published unit prices via a unit price book (UPB) or a price list with a multiplier (termed coefficient) applied to the unit prices also fall under this category

Fixed-Price Contracts

These government contracts are used when the scope of work is clear from the beginning and therefore a price is determined by the agency in advance. There are many different types of this particular contract.

Firm Fixed-Price (FFP)

This contract means that the price is set in stone and the vendor or small business awarded the contract will be taking all the risk. So if the contract is over budget, the small business owner has to pay out of pocket. However, if the project is under budget, then the business will keep the extra profit. This is a great contract for companies that are precise with their pricing and a lot of experience in the field.

Cost-Reimbursement Contracts

Cost-reimbursement is a category of contracts that are used when it would be too difficult to estimate the cost of the project in advance. They usually define a spending limit but are a much lower risk for the service provider than fixed-price contracts. 

Cost Contracts

This contract pays only for expenses and there is no profit for the small business provider. Cost contracts are often used for research projects provided by non-profit organizations.


This contract includes a limit for expenses that will be reimbursed along with a fixed payment for the service provider.


Like Fixed-Price-Incentive contracts, this provides a financial incentive for the service provider to come in under budget, while also covering project expenses.


This contract states that the govt client can pay the expenses of completing the project and also provides financial awards supported criteria outlined beforehand.

Cost Sharing

This type of contract only pays a predetermined portion of the overall costs. It is most common in research contracts where the service provider will benefit in other ways from the results of the research.

The Federal Government Has Government Personnel That Are Strictly Utilized to Help Small Businesses Be More Competitive In Securing Government Contracts

Here are some examples:

  • SBA Procurement Center Representative (PCR): Procurement Center Representatives are often located at a major government buying office, even though they technically work for the Small Business Administration. They will identify items and services that could be produced or provided by small businesses and try to get them “set aside” for small businesses, which means that only small businesses can bid for the contracts. 
  • Competition Advocate: This person is responsible for promoting full and open competition at high management levels in the major buying offices. They are supposed to challenge overly restrictive statements of work and contract clauses that can prove to be burdensome. They also try to expand competition for items by offering challenges to requirements that are not deemed necessary for the performance or essential physical characteristics. 
  • Small Business Specialists (SBS): The law requires that every government buying location must have a Small Business Specialist. These specialists work specifically with small businesses to help them do business with that office. Larger government offices might have full staff while smaller offices might only have one part-time employee assigned to this role. Major government buying offices have full-time staff, while smaller offices have a part-time person assigned to that task. 
  • SBA Commercial Marketing Representative (CMR): Commercial Marketing Representatives keep track of large companies doing work for their departments. These representatives are often the go-to person for fantastic subcontracting opportunities for small businesses. 

How Do You Get Started Working With The Government?

SAM stands for System Award Management.

To do any business with the federal government, you must register your business in the System for Award Management. The government will not hire any type of business that has not registered in the SAM directory.

We have an article on our site, Everything You Need to Know About SAM for Small Businesses, that gives you important information about this process.

As a smart entrepreneur, you have already used our site to register in the SAM directory. Congratulations on taking this important first step to become a government contractor.