The Bidding Process For Government Contracts

The Sam Directory is here to help you understand how your company can gain access to lucrative government contracts. We want to be your guide to making sure your business does not lose out on excellent opportunities. So, now we want to help you navigate the bidding process.

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.

What Type Of Contract Is Being Sought?

The three major contracts that are being sought are fixed price, cost-reimbursement, and special situation.

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.

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 way 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.

Special Situation Contracts

These include:

  • Labor hour: Direct labor hours expended are reimbursed at a hard and fast hourly rate, usually including all costs and profits. (See FAR 16.602)
  • Definite-quantity: The contract quantity is defined, but the delivery schedule is flexible. Payment is on some sort of fixed-price basis. (See FAR 16.502)
  • Requirements: Actual delivery schedules and quantities are flexible during the contract period. Payment is based on a predetermined fixed-price basis. (See FAR 16.503)
  • Special Bidding Techniques and Bid Office Terminology

Time and Materials Contracts

This is also a special situation contract.

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 utilization of labor-hour contracts for certain commercial services. Labor Hour Contracts do not include the cost of materials.

New Bidding Techniques

Auction — A government buying technique where the bidding continues until no competitor is willing to submit a far better (i.e., lower) bid. The technique is usually mentioned as “reverse auction” because the govt is trying to find a rock bottom price, not the very best price.

It is important to do your research and make sure that you can cover your costs in an auction process. Do not get caught up in the excitement of the moment and make calm rational decisions.

Bundling — a way where the govt consolidates two or more requirements that were normally bought separately into one contract. The support contracts of the many military bases, which require a spread of labor disciplines to stay at the bottom operating, are being bid in this manner.

In bundling, make sure that you carefully read all the provisions. It is important to not ignore the project management aspect of this type of bidding.

How Do You Get Started Working With The Government?

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.

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.