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How It Works

How Government Contracts Work

The federal government awards over $700 billion in contracts each year. Here is the step-by-step process, from identifying a need to awarding the contract and tracking the money.

Step 1: The Agency Identifies a Need

Every contract starts with a government agency identifying a need it cannot fill internally. A program office develops requirements: what they need, when they need it, and how they'll measure success. The requirements are reviewed by the agency's acquisition team to ensure they're clear, achievable, and don't unnecessarily restrict competition.

Step 2: Market Research and Acquisition Strategy

Before posting a solicitation, the contracting officer conducts market research to understand what's available commercially, identify potential vendors, and determine the appropriate contract type. Key decisions at this stage include:

Step 3: Solicitation

The agency publishes a solicitation on SAM.gov describing what it needs, how proposals will be evaluated, and the deadline for submissions. For complex procurements, the agency may first issue a Request for Information (RFI) or draft solicitation to get industry feedback before publishing the final Request for Proposals (RFP).

Step 4: Proposal Submission and Evaluation

Companies submit proposals that typically include a technical volume (how they'll do the work), a management volume (who will do the work), a past performance volume (similar work they've done), and a cost/price volume. An evaluation board reviews and scores each proposal against the published criteria. The process can take weeks to months for large contracts.

Step 5: Award and Protest Period

The contracting officer selects the winner — usually the "best value" offer (not necessarily the cheapest) — and awards the contract. Losing bidders are debriefed on why they weren't selected. They have 10 days to file a bid protest with the GAO if they believe the award was improper.

Step 6: Performance and Oversight

Once work begins, the government monitors contractor performance through a Contracting Officer's Representative (COR). The contractor submits deliverables and invoices. The government inspects work, approves payments, and rates the contractor's performance in the Contractor Performance Assessment Reporting System (CPARS) — ratings that affect the company's ability to win future contracts.

Contract Types Explained

The type of contract determines who bears the financial risk:

  • Firm-Fixed-Price (FFP): Set price, contractor bears cost risk. Used for well-defined, predictable work.
  • Cost-Plus: Government reimburses costs plus a fee. Used for R&D and complex projects.
  • IDIQ: Framework contract with task orders issued as needed. Common for services.
  • Time & Materials (T&M): Government pays hourly rates plus materials. Used when scope is uncertain.

Related Resources

Frequently Asked Questions

All federal contract opportunities above $25,000 are posted on SAM.gov (formerly FedBizOpps). Register your business in SAM.gov, identify your NAICS codes, and search for relevant solicitations. You can also set up saved searches to receive email notifications when new opportunities match your capabilities.

A contract is a purchase — the government is buying specific goods or services. A grant is financial assistance — the government is funding an activity for a public purpose. Contracts have defined deliverables; grants have broader programmatic goals. Different regulations govern each: the FAR for contracts, 2 CFR 200 for grants.

Full and open competition means the government publicly solicits proposals from all qualified vendors and evaluates them against published criteria. This is the default requirement for federal procurement. Exceptions include small business set-asides (which restrict competition to small firms) and sole-source contracts (which bypass competition entirely for specific justifiable reasons).