Federal Contract

How It Works

Federal contracts are the primary mechanism through which the U.S. government purchases goods and services from the private sector. The Federal Acquisition Regulation (FAR), codified at Title 48 of the Code of Federal Regulations, governs how contracts are solicited, awarded, administered, and closed out. Every contract specifies deliverables, period of performance, pricing structure (fixed-price, cost-reimbursement, time-and-materials), and performance standards enforced through the Contract Disputes Act of 1978. The federal government obligated roughly $759 billion in contracts in FY2023, with the Department of Defense accounting for about $456 billion (roughly 60% of all contract spending). The Department of Health and Human Services, Department of Veterans Affairs, and Department of Energy round out the top four buyers. Lockheed Martin topped the FY2023 contractor list at approximately $65 billion in prime obligations, driven primarily by the F-35 Joint Strike Fighter program, followed by RTX (Raytheon) at roughly $38 billion and General Dynamics at around $35 billion. Contract dollar tiers drive different rules: micro-purchases below $10,000 can be made by government purchase card without competition; purchases between $10,000 and the $250,000 Simplified Acquisition Threshold use streamlined procedures with small business set-aside preference under the Rule of Two; contracts above $250,000 require full-and-open competition under the Competition in Contracting Act of 1984 (CICA) unless a written Justification and Approval (J&A) documents one of seven statutory exceptions; sole-source awards above $2 million trigger Truth in Negotiations Act certified cost or pricing data requirements. Award data is published to USASpending.gov within 30 days under the Federal Funding Accountability and Transparency Act (FFATA) of 2006 and the DATA Act of 2014, giving the public a near-real-time view of where federal contract dollars flow. TaxDollarData aggregates the USASpending feed to produce contractor, agency, and state-level profiles.

Related Terms

• Federal Grant, Government funding awarded to state/local governments, nonprofits, or institutions for a specific public purpose, unlike contracts, grants are not purchases of goods or services.
• Obligation, A legally binding commitment by the government to spend money, the point at which funds are formally committed to a contract, grant, or other agreement.
• Contracting Officer (CO), The government official with legal authority to enter into, administer, and terminate federal contracts, the only person who can obligate the government.
• Federal Acquisition Regulation (FAR), The comprehensive rule book governing how federal agencies buy goods and services, covering everything from how to write a solicitation to when to use competitive bidding.
• Simplified Acquisition Threshold (SAT), The statutory dollar threshold ($250,000 for most agencies) below which federal agencies can use streamlined acquisition procedures rather than full formal procurement.