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Government contracts may be an untapped revenue stream for your small business. A common misconception is that they’re only awarded to large businesses and corporations, but smaller companies have as good a shot as anyone else. It comes down to understanding how government contracts work — and where to find them. Getting into this market could change the trajectory of your business.
What are government contracts?
The U.S. government is a massive entity with lots of different agencies. Like any large organization, it has practical needs in terms of logistics and operations. Small businesses (which, in most cases, are actually businesses that have up to 500 employees) can leverage government contracts to up their earnings.
The federal government spent roughly $637 billion on contracts in 2021, according to the U.S. Government Accountability Office. The heaviest spending came from:
- U.S. defense agencies
- Health and Human Services
- The Department of Energy
- Veterans Affairs
- Other civilian agencies
- NASA
Government contracts aren’t just for big businesses
Small businesses might have a competitive edge in securing government contracts, especially if they’re already excelling in the private sector. Working with a small business can allow for greater flexibility and less red tape when compared to large companies. They may also be better equipped to provide one-on-one service solutions.
In 2021, small businesses received over $154 billion in government contracts — and secured more than a quarter of the total contracts awarded that year, according to the U.S. Small Business Administration (SBA). That exceeds the federal goal to set aside 23% of government contracts for small businesses. Federal agencies also earmark a portion of government contracts for small businesses owned by disadvantaged groups. (More on this shortly.)
How to find government contracts
Government contracts can be a wellspring of revenue for small businesses. Here’s how to find them.
SAM.gov
The System for Award Management (SAM.gov) is a home base for contract opportunities. It’s maintained by the federal government and allows small businesses to create a profile and vie for open contracts with government agencies. You can search contract opportunities to see if there are any that would be a good fit for your business.
The first step is to register your business for a SAM.gov account. (This entity registration checklist is a good place to start.) While you don’t need an account to search for contract opportunities, you will need one to bid on government contracts.
SBA search tools
Contracting officials from federal agencies use the Dynamic Small Business Search tool (DSBS) to look for available contractors. Having an appealing and up-to-date DSBS profile can help your business stand out from the pack. The information within your profile is pulled from your SAM.gov account, so be sure to optimize it. The SBA also maintains a subcontracting network (SubNet), which connects small businesses with large contractors — some of which may be working with government agencies.
The Historically Underutilized Business Zones program
Each year, the federal government aims to award 3% of its total contracts to small businesses in economically depressed communities. These are also known as HUBZone businesses. To qualify, your business must:
- Have its principal office in a recognized HUBZone
- Have at least 35% of its employees live in a HUBZone
- Be considered a small business by SBA standards
- Be majority owned by at least one of the following:
- U.S. citizens
- A Community Development Corporation
- An agricultural co-op
- An Alaska Native corporation
- A Native Hawaiian organization
- An Indian tribe
If your business is approved for the HUBZone program, your status will be automatically updated within your DSBS and SAM.gov profiles within 48 hours.
The 8(a) Business Development program
The federal government has a goal of awarding at least 5% of its annual contracts to economically and socially disadvantaged small business owners. The 8(a) Business Development Program provides assistance, business training, and mentorship. That includes federal contracting preferences. To qualify, SBA-recognized small businesses must:
- Be majority owned by U.S. citizens who are economically and socially disadvantaged
- Be first-time participants in the program
- Display good character
- Demonstrate the potential to be a successful business
- Have a personal net worth that does not exceed $850,000 (or adjusted gross income of $400,000 or less and assets that total no more than $6.5 million)
Businesses can apply for 8(a) Business Development certification online through the SBA.
The Women-Owned Small Business Federal Contract program
Small businesses that are owned by women are meant to receive 5% of total government contracts. The Women-Owned Small Business Federal Contract Program helps facilitate that. Certified businesses are able to compete for federal contracts that are specifically set aside for this population. These contracts are within industries where women-owned small businesses are underrepresented.
To qualify, small businesses must be recognized by the SBA, be majority owned and controlled by U.S. citizens who are women, and have women manage daily operations and long-term business decisions. Women-owned businesses that are at an economic disadvantage may qualify for additional government contract opportunities. Businesses can apply for the program certification online with the SBA.
