Important Terms To Know For Government Contracting

The United States Government Is A Very Powerful Client With Deep Pockets

The Federal government usually spends around 500 billion dollars a year on goods and services. This makes the U.S. government an extremely attractive client. There are few other organizations with this type of spending power and clout.

The government also tends to buy goods and services in bulk. If your business has the infrastructure to handle large orders, then the government can help you grow substantially at an accelerated pace.

Government agencies also buy goods and services in large quantities. Large orders can be a double-edged sword for small businesses. However, if managed correctly, they can help you grow substantially and rapidly.

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.

The Bid

The Federal government has the following type of solicitations for bidding:

  • Request for Quotation (RFQ). This type is for contracts below $150,000 with a simplified acquisition procedure.
  • Request for Proposal (RFP). This type of solicitation asks vendors to propose in response to the government’s request. You can (and often will) discuss delivery details, technical requirements, and specifications with the contracting officer when you bid on that type of solicitation.
  • Invitation for Bid (IFB). The “lowest bid wins” or “sealed bid” type of solicitation. No discussion or price negotiation is implied here.
  • Request for Information (RFI). This is mostly to research the market and evaluate the interest and capabilities of contractors in a specific niche.

Make sure you read the solicitation requirements carefully. A solicitation package will include documents, technical conditions, attachments, and various other things required with the submission. For most federal government contracts under RFP and IFB solicitations, there are standard contracting forms you should fill. As for required documents, they are listed in the solicitation

Contact your contracting officer if you have questions. You must understand every single thing about the solicitation that you are bidding on. Also, look to FARs (Federal Acquisitions Regulations) that govern the solicitation you are to respond to make sure you know the regulations and requirements.

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 have a lot of experience in the field.

FFP Level-of-Effort

This government contract is defined by the level of effort the service provider will commit to the project, rather than results. It is a common contract used for things like research, which is often hard to define in advance.

FFP Materials Reimbursement

The small business provider will have a predetermined price for service and labor but is reimbursed for the cost of the materials at the end of the project. This contract is often used for repair services where at the beginning, the cost of materials may be unclear.

Fixed-Price with Award Fees

A fixed price with award fees contract offers a hard and fast price for objective performance success. This contract will also have additional awards to incentivize more subjective qualities like aesthetic appearance and technical knowledge

Fixed-Price with Economic Price Adjustment

The prices are often adjusted at the top of the project to account for changes within the cost of labor, materials, or market prices of specific items within the contract. The criteria for these sorts of price changes must be defined within the original contract.

Fixed Price Incentive (FPI)

This contract states a maximum price but it also awards the service provider for coming in under budget. So coming under budget in this type of contract allows for a larger profit for the small business provider.

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 First Step Is Registering With SAM

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

Please read one of the helpful blog articles on our site like Everything You Need to Know About SAM for Small Businesses.  These blogs will help give you all the information you need to understand how we can help make the process very easy for you. Sam Directory will happily guide you through this often confusing process.

SAM stands for System Award Management.

In order 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.

How Do You Get Started Working With The Government?

For example, the following are the steps to apply for a federal grant:

  • Step 1: Obtain a DUNS Number
  • Step 2: Register with SAM
  • Step 3: Register with

You might be wondering what SAM means and how do you register with the site. Go to sam. directory to find people who are willing to make this as easy as possible. Be sure to also check out our informative article Everything A Small Business Needs to Know About the SAM Directory, which should easily answer most of your questions.