When does the federal government use a procurement contract?

Most people know that the federal government buys products and services from the private sector, but not everyone understands the complexities of the procurement process. For business owners who are able to navigate this process, being awarded a federal contract can be very lucrative. In order to compete for a government contract, it helps to understand what procurement contracts are and when the government uses them.

The Federal Government and the Private Sector

The federal government of the United States spends billions of dollars every year purchasing goods and services it needs from the private sector. These products can range from paper clips to rockets for spacecraft. In many countries, the government itself produces a high percentage of these goods and services under a system of nationalized industries, such as mining, airlines and manufacturing. Sometimes the U.S. federal government generates its own products or services through organizations such as the Transportation Security Agency for airport screening. However, the U.S. market-based system exercises a bias in favor of the private sector, based on the theory that competition produces better products at lower costs.

The Federal Government and the Acquisition Process

When the manager of a government agency needs a product, he or she cannot simply pick up the phone and ask a private company like Staples to deliver it. Rather, he or she must follow a complex system of acquisition rules. This can result in red tape and bureaucracy, but the reasons behind these requirements are rooted in principles of transparency and ethics in the expenditure of taxpayers’ dollars. In many countries, backroom deals and corruption are still common in government contracting.

Before any product or service can be purchased by the federal government, the purchase and the appropriation of the funds must be authorized. Both of these authorizations come from Congress. As the legislative branch, Congress alone has the Constitutional power to decide what the government needs and whether the government itself will produce the item or whether it will be procured from the private sector. Once the authorization and appropriation are complete, the executive branch agencies are able to purchase the goods and services.

Federal procurement contracts are generally governed by the Federal Acquisition Regulation (FAR). Most business people are accustomed to contracts between two private parties where they are relatively free to agree to whatever terms they like. Contracts with the government, however, can be very complex because the rules reflect many policy decisions made by Congress. For example, procurement contracts may require certain contracts to be awarded to small businesses or those meeting certain socio-economic criteria.

Government Contracts: Best Price vs. Best Value

Government contracts do not necessarily go to the lowest bidder. The Source Selection Criteria in the FAR allow many contracts to be awarded on a “best value” basis, which may include past performance of the vendor, quality, geo-political considerations, and other factors. The smaller and simpler the contract, the more likely the award will be based solely on price. The larger and more complex the contract, the more likely the award will be based on best value.

The Internet has revolutionized access to information and this is certainly true in the field of government contracting. Business owners interested in selling their goods and services to the federal government can go to http://www.fedbizopps.gov/ for more information.